Ecology and Environment, Inc. Annual Report 2010

FY2010 Annual Report · Ecology and Environment, Inc.

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A N N U A L R E P O R T 2 0 1 0

Celebrating 40 Years
Celebrating 40 Years
Celebrating 40 Years
of Environmental Innovation
of Environmental Innovation
of Environmental Innovation
and LookingToward the Future
and LookingToward the Future
and LookingToward the Future

ecology and environment, inc.
Celebrating 40 Years of Green Solutions

Wetland delineations in the Wasatch Mountains, Davis
County, Utah Apex Expansion pipeline project.

Inset Photo: E & E's innovative IT/GIS applications
allow data from the field to be uploaded and analyzed
by experienced multidisciplinary project teams.

Working Together, Finding Solutions

Ecology and Environment, Inc.,
(“E & E” or “the Company”) is a
recognized global leader in
environmental management with the
depth of knowledge, breadth of
experience, and multidisciplinary
resources to provide clients with
smart, innovative solutions to a full
range of environmental problems.

The Company offers a wide range of
consulting services including
strategic permitting, engineering,
and environmental support for wind,
solar, geothermal, pipeline, electric
transmission, offshore energy, power
generation, gasification, and other
energy development projects.

We also offer environmental
restoration and water resources
planning; environmental, social and
health impact assessment;
sustainability planning and reporting;
climate change solutions including

Financial Highlights

Fiscal year ending July 31

2010

2009

2008

2007

2006

Revenue

$144,875

$146,887

$110,533 $102,496 $97,080

Revenue less subcontract costs

113,806

108,862

94,699

85,281

80,861

Net income attributable to
Ecology and Environment, Inc.

4,257

5,221

1,834

3,074

2,583

Net income per common share: basic

$1.02

$1.27

$0.43

$0.72

$0.61

greenhouse gas (GHG) emissions
inventory and verification, energy
efficiency tracking and audits
(GreenMeter), green building
design, and alternative
transportation programs
(GreenRide ); advanced information
technology, geographic information
systems (GIS), and data
management; regulatory
compliance support; pollution

control engineering; and emergency
planning and management. To
provide these services, E & E employs
specialists in over 85 engineering
and scientific disciplines including the
physical, biological, social, and
health sciences. We have completed
over 50,000 environmental projects
in 96 countries and have worked for
a wide variety of clients in nearly
every ecosystem in the world.

$160

140

120

100

Gross Revenue
(in millions)

Cash Dividends Paid
)
millions

(in

$2.1

1.8

1.5

1.2

0.9

0.6

0.3

$50

Book Value
millions

(in

)

1970 - 2010

Over the past 40 years, E & E has grown revenue, paid and increased a cash dividend, and
increased the book value of your company – these are key metrics of long term sustainability.

GreenRide and GreenMeter are registered E & E service marks.

E & E has printed on 100% recycled paper since 1971. The paper used for this annual report is 100% recycled, 100% post consumer waste, processed chlorine
free, manufactured with wind-generated energy, printed with soy-based inks, and certified by FSC, Green Seal, and SmartWood.

Celebrating 40 Years of Green Solutions

To Our Shareholders

Around the time of the very first Earth
Day in 1970, Gerhard J. Neumaier,
Frank B. Silvestro, Gerald A. Strobel,
P.E., and Ronald L. Frank – four
environmental specialists working at
the Cornell Aeronautical Laboratory
(Calspan) in Buffalo, NY – formulated
a vision for an organization that
would provide real solutions to the
growing number of environmental
problems that were being identified
around the world at an accelerating
rate. Realizing that it would take the
talents of a multidisciplinary team of
scientists, technicians and engineers,
they left Calspan and founded
Ecology and Environment, Inc. – a
very modest operation in a loft over
retail space in suburban
Buffalo, NY.

The founders' unique multi-
disciplinary approach to
environmental consulting
quickly took hold, first with
local projects, then with regional,

national and overseas
engagements. Much of the
Company's early domestic
consulting work grew from
requirements for environmental
impact assessments stemming
from the passage of the
National Environmental Policy
Act of 1969 and subsequent
legislation. Early on, the

The founders (from left to right), Messrs. Neumaier,
Frank, Silvestro, and Strobel, break ground for E & E's
Buffalo Corporate Center in 1987.

Company decided not to align with
government or business exclusively,
but to develop a reputation for
scientific quality and validity that
could serve either sector equally
well. This underlying commitment to
technically sound environmental
solutions has sustained E & E's
global growth in revenue and profit
to the present day.

E & E began in the loft above this small, suburban Buffalo, NY retail
store, shown at left. Today, we operate from our award-winning
headquarters building and from 54 locations around the world.

Ecology and Environment, Inc.

E & E's Business Has Been Global in Scope
from the Beginning

To date, E & E has worked in 96
countries and prepared reports in 44
languages. As the global demand for
environmental services is increasing,
we are well positioned. We have
always thought of our mission as a
global one – we have one Earth and
one linked environment. We are well
positioned in the global market today
because of our activity over the past
40 years.

E & E first established its international
presence in Tokyo in 1974. Shortly
thereafter, as international energy
sector business developed, Tokyo was

In the early 80’s, the Company
recognized that normalizing relations
with the People’s Republic of China
could lead to business opportunities
for an early market entrant. Then-
CEO Gerhard Neumaier made
several visits for meetings with top
Chinese officials, paving the way for
E & E to assist with the development
of meaningful regulations and to
provide solutions for existing point-
source pollution problems.

We are currently in the midst of a
four-year, $3 million project
providing technical assistance for
China’s Sichuan Urban

Development
Project (SUDP), a
$180 million
program funded by
the International Bank
for Reconstruction and
Development. Our
Chinese affiliate is
providing several senior
western technical
specialists to assist the
SUDP Management
Office in reviewing

1980-1984: E & E evaluated the cost
of various air pollution control strategies for the entire
complex at Yanbu and recommended the preferred control methods.

followed by small operations in
Mexico City, Caracas, and Jeddah.
Our Middle Eastern operations
expanded significantly once Ecology
and Environment of Saudi Arabia
Co., Ltd. (EESAL) was awarded the
role of environmental consultant to
the Royal Commission for Jubail and
Yanbu, which was developing two
huge new urban complexes in the
desert kingdom.

designs, preparing bid documents,
managing contracts, and
supervising construction of
infrastructure facilities in Mianyang,
Suining, Yibin, and Panzhihua.
Construction will include local
access roads, bridges, sewerage
and wastewater collection systems,
drainage aids, river embankment
erosion control improvements, and
general landscaping.

Top: E & E experts conduct a site investigation
at the Dezhou City sewer system development
under an Asia Development Bank and Chinese
government co-financed environmental
mitigation project.

Bottom: Sampling water quality at an
evaporative/percolation basin near the Burgan
Oil Fields of Southern Kuwait.

Celebrating 40 Years of Green Solutions

In South America, E & E's Walsh-
Ecuador subsidiary has completed its
environmental impact assessment
(EIA) for the award-winning new
Quito International Airport. We
helped guide important design and
operational decisions to ensure that
the new facility is not only compatible
with the sensitive ecosystems, but also
contributes to conservation and
recreational uses. When complete, it
will be one of the few airports where
a person with a three-hour flight
layover can quickly access nature
trails extending straight out from the
terminal and go bird watching in a
high-diversity forest.

Work is progressing on the Inter-
American Development Bank’s long-
range contract to monitor
environmental and social conditions
associated with its credit guarantee
for the $400 million Costanera
Norte Toll Road being built across
Santiago, Chile. The monitoring will
continue through road construction
and operation, with an anticipated
completion date of late 2018.

E & E is conducting dozens of
complex domestic and overseas
tasks under various contracts with
the Naval Facilities Engineering
Command. We recently developed
an Encroachment Control and
Action Plan based on Navy and
Marine Corps policy and guidance.

This was conducted during the stand
up of the first Navy “joint region” –
Joint Region Marianas – a
Department of Defense initiative to
consolidate and streamline
installation management functions
across service components. Potential
or future encroachment challenges
focused on the pending relocation of
select Marine Corps elements from
the III Marine Expeditionary Forces
from Okinawa, Japan to Guam.

Our global headquarters building was
designed and constructed in 1988 by
E & E's founders to embody
environmental quality. In 2008, the
building was awarded Platinum-level
Leadership in Energy and
Environmental Design (LEED)
certification for existing buildings by

the U.S. Green Building Council.

have been applying the corporate
expertise that went into our planning
for this headquarters facility for
clients interested in reducing their
carbon footprints to lessen their
environmental impact. For example,
last fall E & E worked with the State
University of New York at Buffalo to
develop a climate action plan (CAP)
as part of their requirements as a
signatory of the American College
and University Presidents Climate
Commitment. The CAP outlines a
strategy to achieve climate neutrality
through a combination of efficiencies
such as building retrofits,

E & E is an environmental pioneer. Our global
headquarters is the world's oldest existing LEED
Platinum building.

transportation infrastructure
upgrades, telecommuting, material
use reduction, high performance
design for new facilities, and
behavioral changes along with the
purchase of carbon offsets and
Renewable Energy Certificates.

Walsh Environmental Scientists and
Engineers, Inc., an E & E subsidiary,
is progressing on its six-year, $3
million contract with Colorado’s
Regional Transportation District
(RTD), providing environmental
services to support its FasTracks
Program: a voter-approved, $4.7
billion capital construction project for
nine rapid transit corridors in the
seven-county Denver region. The
scope of work includes Phase I and II
environmental site assessments,
underground tank services, technical
services for RTD projects initiated
under the state’s Voluntary Cleanup
Program, remediation design,
services for asbestos and lead-based
paint, data management, and
associated technical services.

Military and local government representatives discuss encroachment at an E & E-facilitated
workshop on the island of Guam. Participants worked collaboratively to develop recommendations
that address encroachment issues through prevention, mitigation, or improved management.

Ecology and Environment, Inc.

SEATTLE

PORTLAND

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GILLETTE

LANDER

SALT LAKE
CITY

FT. COLLINS

GRAND
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JUNCTION

LAKEWOOD
CO
COLORADO
SPRINGS

BOULDER
DENVER

S D

K S

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PHOENIX

OAKLAND

SAN FRANCISCO

LONG BEACH

SAN DIEGO

N M

DALLAS

ANCHORAGE

AUSTIN

M E

ALBANY

MA
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PROVIDENCE

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NEW YORK
CITY

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BUFFALO

CHICAGO

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M D
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WASHINGTON, DC

WV
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WILLIAMSON

PIKEVILLE

KANSAS CITY

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BATON ROUGE

TALLAHASSEE

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PENSACOLA

ORLANDO
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WEST PALM
BEACH

MIAMI

VIRGINIA
BEACH

KEY:

E & E Office Location
E & E Wind Project-Spinning
E & E Wind Project
E & E Solar Project

Total MWs Spinning: 2,811

We’re Making Energy Production Greener

We have been very successful in
securing work for the siting and
environmental review of new wind
farms. We have demonstrated
considerable expertise in dealing with
avian and bat population impacts.
Our domestic projects from coast to
coast represent 2,922 MW of wind
generation currently in service as of
October 2010.

month period, and operation of a
49-MW solar field, control and
maintenance building, and
substation to provide interconnection
to an existing 33-kV line.
October, U.S. Secretary of the
Interior Ken Salazar approved the
project, making it one of the first two
large-scale solar energy plant
projects to be constructed on U.S.
public lands.

E & E’s management recognized
early on that the oil and gas industry
provided outstanding opportunities
for commercial consulting contracts
due to federal and state permitting
requirements for new facilities. In
1972, we opened our first field office
in Houston, TX for a Tenneco gas
pipeline project. A year later, we
established a presence in Billings,
MT, and subsequently, in Omaha,
NE to support the Northern Border
Gas Pipeline project.

In 1974, we received a major award
from the U.S. Department of the
Interior to monitor the design and
construction of the massive Trans-
Alaska Pipeline System for
environmental compliance, and we
opened our office in Anchorage, AK.
Today, virtually all our domestic and
international offices are involved with
various aspects of energy
development from both alternative
energy sources and conventional
carbon-based resources.

E & E prepared an
environmental impact
statement (EIS) for
Chevron Energy Solutions’
Lucerne Valley Solar
project for the U.S. Bureau
of Land Management
(BLM). The project consists
of a proposed photovoltaic
solar power plant on 516
acres (209 ha) of land in
California’s San
Bernardino County. Our
EIS evaluated the
environmental effects of
construction over a five-

Site of the Lucerne Valley Solar Project, one of 50 we worked on
in 8 states this fiscal year.

Celebrating 40 Years of Green Solutions

E & E biologists install acoustical
bat monitoring equipment to
support preconstruction surveys
at a proposed wind farm site.

Also in California, the Company is
preparing an EIS for issuance of
solar and wind energy rights-of-way
and geothermal leasing within the
West Chocolate Mountains
Renewable Energy Project Area. This
work is being completed for BLM
under our nationwide U.S. General
Services Administration (GSA)
environmental contract mechanism.

E & E is working on several
environmental planning projects for
the California Public Utilities
Commission (CPUC). For example,
we developed the CPUC’s
Proponent’s Environmental
Assessment Streamlining Approach
currently in use for the Eldorado to
Ivanpah Transmission project. We
are preparing the third-party joint
EIS/environmental impact report
(EIR) and biological assessment
which comprises construction of a
new substation, installation of a
telecommunications line, and a 36-
mile (58-km), 115-kV transmission

Ecology and Environment, Inc.

line upgrade spanning the
California/Nevada border. We are
also preparing an EIR for the 56-
MVA 115/12-kV unattended Triton
Substation in Riverside County.
Fulfilling the promise in our ad by
eliminating typical data gap delays,
we are reducing the turnaround time
in issuing the third-party EIR/EIS —
as we were able to do in issuing the
Draft, which was published on
schedule despite the addition of an
entire section.

The Company is supporting Clean
Line Energy Partners to expedite its
800-mile (1,290-km), long-haul,
high-voltage, direct current (HVDC)
transmission line that will connect
renewable resources on the Great
Plains to consumers in Eastern
markets. Phase I includes the
evaluation of suitable corridors and
the identification of preferred and
alternate routes.

We are currently promoting E & E’s capabilities
in all aspects of energy development in
North
American Clean Energy

magazine.

As part of a four-year, $3.3 million
project, E & E Brazil is conducting
limnological and aquatic macrophyte
monitoring during construction of the
Santo Antonio Hydroelectric dam on
the Madeira River, the Amazon’s
longest tributary. The monitoring,
initiated prior to the reservoir filling
phase and continuing through dam
construction, encompasses over 186
miles (300 km) between the Jirau
waterfalls and Cunia Lake.

Having prepared all the pre-
construction environmental
permitting support required for El
Paso Corporation’s Ruby Natural
Gas Pipeline, which will extend from
Opal, WY, through Utah and
Nevada to Malin, OR, E & E is now

providing required environmental
inspections and reports during the
675-mile (1,086-km) pipeline’s
construction. Construction on the
Ruby Natural Gas Pipeline began
this summer and, with approvals
from the Federal Energy Regulatory
Commission, is the first-ever carbon-
neutral pipeline.

Late in 2009, E & E's Walsh Peru
subsidiary completed a socio-
environmental prefeasibility
assessment for the 822-mile (1,325-
km) Kuntur gas pipeline, proposed to
connect the existing Camisea-Lima
pipeline with Peru’s southern region.
The pipeline is part of an integrated
energy generation and distribution
project crossing four Peruvian regions

to carry gas to several cities. As part
of our work, we developed a
document management Web site for
this project.

In January 2010, the GSA awarded
the Company a nationwide Blanket
Purchase Agreement to provide
comprehensive energy services. GSA
is one of the world's largest building
managers with more than 350
million square feet (32.5 million
square meters) of space in more
than 2,000 communities. This
program is part of a government
strategic sourcing initiative to
transform federal buildings into high
performance green buildings with
greater energy efficiency.

E & E staff assesses the condition of
stockpiled surcharge soil along the Samtskhe
Javakheti Road, Republic of Georgia for the
Millennium Challenge Corporation.

Celebrating 40 Years of Green Solutions 7

E & E has expanded its mining sector capabilities by joining with Engineering
Consulting Services, Inc. (ECSI) of Lexington, KY to form ECSI, LLC.

We Make Resource Development Cleaner and Safer

Several firms in the E & E family of
companies serve the coal and hard
rock mining industries. In August
2010, we expanded our capabilities
by joining with Engineering
Consulting Services, Inc. (ECSI) of
Lexington, KY, to form a new entity
called ECSI, LLC. Our new partner is
a consulting firm that provides
integrated engineering,
environmental, energy, and natural
resources services to the mining and
aggregates industry in the
Applachian region. The two firms
have had an established, decade-
long working relationship and have
won several multimillion-dollar
projects together. ECSI has
expanded through controlled and
steady growth throughout its 27-year
history. Today, it operates five offices

Ecology and Environment, Inc.

in Kentucky and West Virginia with
over 50 employees and $4-$5
million in annual sales. We look
forward to adding their roster of
technical capabilities to our resource
development expertise.

E & E is conducting a high-profile,
$1.1 million remedial
investigation/feasibility study (RI/FS)
for BLM at the former Red Devil
mercury mine, located in a remote
part of Alaska’s Kuskokwim
Mountains. Following years of
interim BLM cleanup actions, our
comprehensive RI/FS addresses
contaminants remaining in tailings,
calcines, and abandoned ore
material and their impact on surface
water, groundwater, and aquatic
biota in Red Devil Creek and the

Kuskokwim River. The project has
required extensive logistics planning.

In June, the U.S. Environmental
Protection Agency (EPA), the Texas
Commission on Environmental
Quality, and BLM commemorated
issuance of a “Ready for Reuse”
determination for the former Exell
Helium Plant in Masterson, TX.
E & E’s 24-month, $800,000 project
work in preparation for closure and
clean up of the former helium and
lead producing plant was
instrumental in getting the “Ready for
Reuse” certificate — the first to be
issued to a U.S. Department of
Interior facility nationally.

We’re Reducing Pollution and Improving the
World’s Water Supplies

With rapidly expanding population,
especially in poorer, developing
nations, the availability of sufficient,
safe, potable water has become a
global challenge. The effects of
climate change resulting from
increasing carbon emissions are
expected to compound the problem
as sea levels rise and desertification
affects more inland areas. E & E’s
very first project in 1970 involved
laboratory analysis of a local
wastewater source. Over the years,
we have become involved with
numerous projects involving point
source water pollution control,
stormwater runoff, industrial
pretreatment, discharge
permitting, and related issues.

supplies was called upon in 1979,
when we were awarded the first of a
number of nationwide and regional
projects to provide Technical
Assistance Teams (TATs) to support
the EPA with its oil and hazardous
substances spill prevention and
control program. The contract
required us to open, staff, and begin
operating offices in Washington, DC
plus the 10 cities where EPA’s
regional offices were located – all
within the required 90-days from
notice of award.

Our performance on TAT helped us
to earn additional multi-year, multi-

million-dollar contracts to provide

Field Investigation Teams (FITs) to
EPA to investigate and plan
mitigation for abandoned industrial
and governmental hazardous waste
sites. We won a number of
additional major contracts over the
years as we expanded our
reputation for dealing with
“Superfund” and related nuclear
and mixed-waste sites where
petroleum, chemical, and
radiological pollutants were
encroaching on water supplies. For
many years, E & E was recognized
as EPA’s largest professional
services contractor.

The Company’s
demonstrated expertise
in protecting water

E & E is providing project oversight for the Phase I
dredging of PCB contamination in the Hudson River.

Celebrating 40 Years of Green Solutions

After 9/11, E & E’s ability to respond
quickly to hazardous situations was
called upon in a number of federal
and state projects dealing with
counterterrorism, particularly with
regard to chemical and biological
threats. Although the activity has
reduced somewhat from the level of
the past decade, we still are broadly

involved with hazmat
counterterrorism efforts.

In February 2010, the Louisiana
Department of Natural Resources
awarded E & E a $284,000
contract to assist in developing a
statewide Groundwater
Management Plan focusing on

conservation and sustainability of
surface and groundwater resources.
Recent changes in Louisiana’s water
demand and hydraulic fracturing for
gas recovery in the northern region
of the state were the impetus for this
comprehensive approach to water
conservation.

We’re Restoring Damaged Ecosystems
for Future Generations

In May 2010, E & E was awarded a
five-year, indefinite-delivery/quantity
contract with a $12 million ceiling
by the U.S. Army Corps of Engineers
(USACE), Buffalo District for
ecosystem restoration and
environmental consulting services.
Work will be performed primarily as
part of the Great Lakes Restoration
Initiative (GLRI) within

USACE’s Buffalo, Chicago, and
Detroit Districts and could also
include services throughout
USACE’s Great Lakes and Ohio
River Division boundaries.

In July, we obtained a contract to
prepare a comprehensive strategy to
develop an Invasive Species (IS)
Management Plan for New York
State, where native plant

communities within aquatic and
terrestrial habitats have been
severely altered by invasives. Most
evident in riparian areas, Japanese
knotweed, mugwort, bush
honeysuckle, and buckthorn have
formed dense monocultures along
waterways.
invasives have completely eliminated
native cover types.

In some areas, these

E & E conducted a pre-design sediment
investigation to support the clean-up of the
Buffalo River by EPA Great Lakes National
Program Office under the Great Lakes Legacy Act.

Ecology and Environment, Inc.

Web-Based Solutions to Make a
Sustainable World Easy

In 1973, E & E began offering its
employees cash incentives for
carpooling and commuting to work
utilizing methods other than single-

vehicle miles traveled, and improve
customer service. A month later, we
globally rolled out GreenRide
Connect, a state-of-the-art Web-

based platform that facilitates
more sustainable
transportation matches for
commuters. Implemented at
the multinational, national,
municipal, or organizational
level, GreenRide Connect
reduces single-passenger
vehicle use through an easy-
to-use online interface that
identifies personally relevant
options for carpools, vanpools,

bicycling, park-and-ride facilities,
and public transit. Other GreenRide
products developed by E & E
include GreenFleet and Quickflow.

The Company recently conducted a
comprehensive energy audit at the
Weinberg Campus nursing and
senior facility in suburban Amherst,
NY using GreenMeter to collect,
track and analyze energy
information.
implemented, our recommendations
should result in a 27% reduction in
annual electricity bills and an
estimated annual savings of
$278,000, providing simple payback
in under a year with projected total
net savings of $1.1 million after five

When fully

years.

GreenMeter is a dynamic

energy tracking and management
tool we developed and offer clients
for use on a subscription basis.

Buffalo News article - June 25, 1979

In 2003, we

occupancy automobiles. Over the
years we refined and computerized
our internal program, establishing
the Web-based, GIS driven system
we call GreenRide.
recognized the commercial potential
of marketing our technology and
began selling a growing range of
GreenRide programs to
communities, universities, individual
business, and government agencies
throughout the USA and abroad.

This July, we launched Flex-T, a
patent-pending Web-based
paratransit and specialized
transportation management
program. Flex-T facilitates the
consolidation of specialized and
paratransit programs across multiple
service agencies — including health,
eldercare, economically
disadvantaged, and rehabilitation
programs — to increase utilization,
consolidate passenger trips, reduce

E & E Web brands that are making environmental
sustainability easier for our clients.

GreenMeter and Envella, as displayed above, as well as Flex-T and
Project Earth are registered E & E service marks.

Celebrating 40 Years of Green Solutions

Interiorscape, one of America's
leading magazines for the interior
plantscape industry, featured the
Platinum LEED-certified interior of
E & E's headquarters on the cover of
its 2010 Calscape Show publication.
The August 2010 publication featured
photos of E & E's atrium and cited the
significance of building designs that
support a biophilic connection in
acquiring LEED certification, which
includes promoting healthy work
spaces and a sense of psychological,
physical, and social well-being.

Under three separate contracts with
the USACE Fort Worth District, E & E
has provided cost-effective, master
planning services to help Fort Hood
officials respond to the need for
long-range planning and daily
stationing requirements at one of the
nation’s largest military installations.
Our work has included a full-service
Real Property Master Plan and
related support, including the
development of the Long-Range
Component, Capital Investment
Strategy, Installation Design
Guidelines, and various Area
Development Plans. The project
includes extensive use of the
Comprehensive Army Master
Planning System (CAMPS) ADP Tool
Module and economic energy
analysis we developed.

On January 1, 2010, E & E
introduced Project Earth®

(www.ProjectEarth.net). Project
Earth is a global environmental
network designed to connect
schools around the world to help
solve environmental problems.
Through Project Earth, students are
provided the tools to showcase
innovative environmental projects
and to connect and interact with
other ecologically-minded young
people around the world. Students
are able to share ideas, resources,
and solutions to environmental
problems and participate in
environmental contests, earning
recognition for their efforts.

Project Earth has been endorsed
globally by Green Cross
International, the International
Foundation for Survival and
Development of Humanity, the Buffalo
Niagara Riverkeeper, and others.

Ecology and Environment, Inc.

Over the past 40 years, E & E has
achieved many great things that
have positioned us for growth going
forward. A history of innovative
environmental solutions, an
outstanding staff of employees,
strong financial stability, and a
global platform have put us in an
excellent position. We owe it to our
clients, our shareholders, our
employees, our children, and our
planet to achieve greater success in
the next 40 years.

Kevin S. Neumaier, P.E.
President and Chief Executive Officer

Some Words from Our Chairman

When Frank, Ron, Gerry and I left
Calspan to form E & E 40 years ago,
we had visions of building a company
that would one day become globally
recognized as a leading element in
making the world a cleaner and
healthier place for mankind and other
living things – all the while yielding a
decent profit for doing so.

engineering consulting firm with a
rented headquarters and testing
laboratory building, a growing
number of field offices, and a few
foreign subsidiaries, we decided to
raise public capital. The goal was to
be able to boost our domestic and
international expansion by
acquisition and to provide funds for

an expanded,
environmentally state-of-the-
art home office and nearby, a
separate well-equipped
analytical services center.

At that time, our Board of
Directors made the strategic
decision that, as a public
company, we would focus on
long-term growth, both in
revenues and net income.
What's more, we set the policy of

sharing the positive results of our
annual efforts with our Class A and
Class B shareholders by issuing cash
dividends. Very few, if any, publicly
held professional service companies
did so in 1987 or do today. I am
proud to say that E & E’s dividend

E & E became a publicly traded corporation on
the American Stock Exchange in 1987.

Over the years, we progressed
towards this goal, generally smoothly,
but, like all other businesses, with
some unexpected bumps along the
way. After operating for 17 years as a
privately held scientific and

rate has grown regularly for the past
23 years and was just raised by our
Board to an annual rate of $0.44 per
share, generating a yield of around
3.5 percent as of late October.

Looking ahead, we are well-
positioned to respond to the
accelerating demand for scientific
and engineering services that help
governments and industries make the
positive moves required to counteract
the humanly generated contributors
to global warming and related
environmental threats. Our 40-year
history proves that as new challenges
are identified, E & E gets there early,
not only providing meaningful
solutions for our consulting clients,
but also generating a respectable
return for our shareholders’
investments. Under Kevin’s
leadership, I anticipate that the
Company will continue to do so well
into the future.

Gerhard J. Neumaier,
Chairman

Seasonal management of the grassland at E & E’s Buffalo Corporate Center
attracts regional wildlife with its food, cover, and nesting habitat.

Celebrating 40 Years of Green Solutions

Selected Consolidated Financial Data

Operating data:

Revenues

Income from operations

Income from continuing operations before
income taxes

Net income attributable to Ecology and
Environment, Inc.

Net income per common share: basic and diluted

Cash dividends declared per common share:
basic and diluted

Weighted average common shares outstanding:
basic and diluted

Balance sheet data:

Working capital

Total assets

Long-term debt

Year ended July 31,

2010

2009

2008

2007

2006

(In thousands, except share and per share amounts)

144,875

146,887

$ 110,533

102,496

97,080

9,893

9,445

5,593

5,310

5,833

10,459

9,450

5,554

5,720

5,968

4,258

1.02

0.42

5,221

1.27

0.39

1,834

0.43

0.36

3,074

0.72

0.34

2,583

0.61

0.33

4,160,816

4,115,921

4,259,663

4,281,431

4,264,105

Year ended July 31,

2010

2009

2008

2007

2006

(In thousands, except per share amounts)

$ 38,950

$ 36,142

$ 36,871

34,313

28,306

79,959

77,808

75,602

71,206

69,152

767

404

482

385

342

Ecology and Environment, Inc. Shareholders' equity

44,864

41,051

39,254

40,913

37,627

Book value per share: basic and diluted

$ 10.79

9.97

9.22

9.56

8.82

To help clients meet sustainable goals worldwide, E & E uses innovative
techniques to delineate wetland locations, determine project impacts on wetlands,
and provide recommendations for protecting this valuable natural resource.

14 Ecology and Environment, Inc.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Liquidity and Capital Resources
Operating activities provided $2.4 million of cash during
fiscal year 2010. This was mainly attributable to the
reported $6.6 million in net income, a $1.1 million
increase in income taxes payable, and a $.8 million
decrease in income tax receivable. Offsetting these was an
increase in contract receivables and a decrease in accounts
payables. Contract receivables increased $5.7 million
during fiscal year 2010 due to the increased work volume
at Ecology and Environment, Inc. (Parent Company) during
the fourth quarter with energy and international market
customers. The Company believes these will be collected in
a timely manner. Accounts payable decreased $3.1 million
during fiscal year 2010 primarily due to the decreased
subcontracted work in the fourth quarter.

Investment activities consumed $2.3 million of cash during
fiscal year 2010 mainly attributable to the purchase of
additional noncontrolling interest in Walsh Environmental
(Walsh) by the Parent Company and the purchases of
property, building and equipment of $2.0 million during
fiscal year 2010. During the second quarter of fiscal year
2010, the Company purchased an additional
noncontrolling interest in Walsh for $3,000,000 to increase
its ownership to 76%. One third of the purchase price was
paid in cash, one third was paid with E&E stock, and the
remainder was issued as loans to be repaid over a two-year
period. Offsetting this was the sale of 16.5 acres of land by
the Company at its Walden Avenue facility in Lancaster,
New York for the sum of approximately $959,000.

Financing activities consumed $2.6 million of cash during
fiscal year 2010. The Company paid dividends in the
amount of $1.7 million or $.41 per share. Net cash
outflow on long-term debt and capital lease obligations was
$.3 million due mainly to the repayment of loans and
capital leases at two of the Parent Company’s majority
owned subsidiaries, E&E do Brasil and Walsh. Distributions
to noncontrolling interests during fiscal year 2010 were
approximately $.8 million.

The Company maintains an unsecured line of credit
available for working capital and letters of credit of $20.2
million at interest rates ranging from 3% to 5% at July, 31,
2010. Other credit lines are available solely for letters of
credit in the amount of $13.5 million. The Company

guarantees the line of credit of Walsh. Its lenders have
reaffirmed the Company’s lines of credit within the past
twelve months. At July 31, 2010 and July 31, 2009 the
Company had letters of credit outstanding totaling
approximately $4.9 million and $.6 million, respectively.
After letters of credit and loans, there was $28.9 million of
availability under the lines of credit at July 31, 2010. The
Company believes that cash flows from operations and
borrowings against the lines of credit will be sufficient to
cover all working capital requirements for at least the next
twelve months and the foreseeable future.

Results of Operations
Revenue
Fiscal Year 2010 vs 2009
Revenue for fiscal year 2010 was $144.9 million, a
decrease of $2.0 million from the $146.9 million reported
for fiscal year 2009 mainly attributable to decreases at the
Parent Company and Walsh. Revenue at the Parent
Company was $84.2 million for fiscal year 2010, a
decrease of $3.8 million or 4% from the $88.0 million
reported in the prior year. This decrease was attributable to
work performed on contracts in the Company’s federal
government and state sectors offset by increases in work in
the energy and international sectors. Revenues from the
Parent Company’s federal government sector were $27.2
million for fiscal year 2010, a decrease of $6.2 million from
the $33.4 million reported in the prior year mainly
attributable to decreased activity in contracts with the United
States Department of Defense (DOD). Revenues from the
Parent Company’s state sector were $20.5 million for fiscal
year 2010, down $4.1 million from the $24.6 million
reported in fiscal year 2009. The decrease in state
revenues was mainly attributable to decreased activity in
Washington, New York and Florida due to the state
budgetary constraints. Revenues from the Parent
Company’s commercial sector were $32.0 million for fiscal
year 2010, up $2.0 million from the $30.0 million reported
in fiscal year 2009 attributable to increased activity in the
domestic energy market. Revenues from the Parent
Company’s international sector increased $4.5 million over
the prior year mainly attributable to increased activity in the
Middle East, Africa and China. Walsh reported revenues of
$42.1 million for fiscal year 2010, a decrease of $3.5

Celebrating 40 Years of Green Solutions

million or 8% from the $45.6 million reported in fiscal year
2009 mainly attributable to the completion of work
associated with a redevelopment project. E&E do Brasil
reported revenue of $10.5 million for fiscal year 2010, an
increase of $2.8 million or 36% from the $7.7 million
reported in the prior year. The increase in revenue at E&E
do Brasil was associated with increased work on contracts in
the energy market.

E&E reported revenue of $41.0 million for the fourth
quarter, comparable to the $41.1 million reported in the
fourth quarter of the prior year. Revenue at the Parent
Company was $25.3 million during the fourth quarter of
fiscal year 2010, an increase of $1.5 million attributable to
work performed on contracts in the Company’s domestic
energy market and international sector offset by decreases
in work in the federal government and state sectors.
Revenues from the Parent Company’s commercial sector
were $11.9 million for the fourth quarter of fiscal year
2010, an increase of $3.3 million from the $8.6 million
reported in the fourth quarter of fiscal year 2009
attributable to increased activity in the domestic energy
market. Revenues from the Parent Company’s international
sector were $1.8 million for the fourth quarter of fiscal year
2010, an increase of $1.5 million over the fourth quarter of
the prior year. The increase in international revenues was
mainly attributable to increased activity in the Middle East
and Africa. Revenues from the Parent Company’s federal
government sector were $6.8 million for the fourth quarter
of fiscal year 2010, a decrease of $1.3 million from the
$8.1 million reported in the prior year mainly attributable to
decreased activity with DOD contracts. Revenues from the
Parent Company’s state sector were $4.7 million for fourth
quarter of fiscal year 2010, down $2.1 million from the
$6.8 million reported in the fourth quarter of fiscal year
2009. The decrease in state revenues was mainly
attributable to decreased activity in Illinois, California and
New York. Walsh reported revenues of $10.2 million for the
fourth quarter of 2010, a decrease of $3.0 million or 23%
from the $13.2 million reported in the fourth quarter of
fiscal year 2009 mainly attributable to the completion of
work associated with a redevelopment project.

Fiscal Year 2009 vs 2008
Revenue for fiscal year 2009 was $146.9 million, an
increase of $36.4 million or 33% from the $110.5 million
reported in fiscal year 2008. The increase in revenue was
due mainly to increases in revenue at the Parent Company
and by Walsh in the energy, environmental restoration,
asbestos and federal government sectors. Specifically,

revenues from Walsh were $45.6 million for fiscal year
2009, an increase of 69% from the $27.0 million reported
in fiscal year 2008. The increase in Walsh revenues was
mainly attributable to increased activity in the environmental
remediation and asbestos markets. Revenues from the
Parent Company’s federal government sector were $33.4
million for fiscal year 2009, up $12.0 million from the
$21.4 million reported in the prior year. The increase in
federal government revenues was mainly attributable to
increased activity in contracts with the DOD and
Environmental Protection Agency (EPA). Revenues from
commercial clients of the Parent Company were $30.0
million for fiscal year 2009, an increase of 42% from the
$21.2 million reported in fiscal year 2008. The increase in
revenues from commercial clients was mainly attributable to
increased activity in the domestic energy market. Offsetting
these were decreases in revenue from the Parent
Company’s international and state markets. Revenue from
state clients of the Parent Company was $24.6 million for
fiscal year 2009, a decrease of $2.5 million from the $27.1
million reported in fiscal year 2008. State budgets are
under pressure and the Company believes its state markets
will continue to be impacted until the domestic economy
recovers. Revenue from international clients of the Parent
Company decreased $1.5 million during fiscal year 2009.

Revenues for the fourth quarter of fiscal year 2009 were
$41.1 million, an increase of $7.7 million from the $33.4
million reported in the fourth quarter of the 2008. The
increase in revenue was attributable to increased work in
the Company’s energy, environmental restoration, asbestos
and federal government sectors. Walsh reported revenues
of $13.2 million for the fourth quarter of fiscal year 2009,
an increase of 74% from the $7.6 million reported in the
fourth quarter of fiscal year 2008 due to increased activity
in the environmental remediation and asbestos markets.
Revenues of the Parent Company increased $1.7 million
during the fourth quarter of fiscal year 2009 mainly
attributable to increased activity in the energy and federal
government markets, offset by a decrease in activity in the
state market. Revenues from the Parent Company’s federal
government sector were $8.1 million for the fourth quarter
of fiscal year 2009, an increase of 25% from the $6.5
million reported in the prior year. The increase in federal
government revenues was mainly attributable to increased
activity in contracts with DOD and EPA. Revenue from
commercial clients of the Parent Company was $8.6 million
for the fourth quarter of fiscal year 2009, an increase of
$.7 million from the $7.9 million reported in the fourth
quarter of fiscal year 2008. Revenue from state clients of

16 Ecology and Environment, Inc.

the Parent Company was $6.8 million for the fourth quarter
of fiscal year 2009, a decrease of $.6 million from the $7.4
million reported in the fourth quarter of fiscal year 2008.

Income Before Income Taxes
Fiscal Year 2010 vs 2009
The Company’s income before income taxes was $10.5
million for fiscal year 2010, an increase of $1.0 million
from the $9.5 million reported in fiscal year 2009. The
majority of the increase is attributed to a gain on the sale of
land. During the first quarter of fiscal year 2010, the
Company recorded a sale of 16.5 acres of land at its
Walden Avenue facility in Lancaster, New York for the sum
of approximately $959,000 plus closing costs. This sale
resulted in a gain of approximately $809,000 ($453,000
after tax) which positively impacted earnings by $.11 per
share. Gross profits increased $5.7 million during fiscal
year 2010. The gross margin percentage for fiscal year
2010 was 44%, up from the 40% reported for fiscal year
2009. The increase in gross margin percentage was
attributable to a significant decrease in subcontract costs
throughout the Company. Subcontract costs were $31.1
million for fiscal year 2010, a decrease of 18% from the
$38.0 million reported in the prior year. Gross margin as a
percentage of revenue less subcontract costs was 56% for
fiscal year 2010, a slight increase from the 54% reported in
fiscal year 2009. The increased gross profits were offset by
Indirect costs were
higher indirect costs in fiscal year 2010.
$52.6 million for fiscal year 2010, an increase of $5.2
million from the $47.4 million reported in the fiscal year
2009 attributable to increased staffing levels and business
development and proposal costs worldwide. The Company
reached settlements with Kuwait and the federal government
during fiscal year 2009. The Company settled the Kuwait
tax dispute and the related accrual for uncertain tax position
charges and reserved the $925,000 balance of receivables
on the Middle East contracts which resulted in a net gain of
approximately $.24 per share. Additionally, the Company
derecognized reserves related to federal government
contracts of $562,000 ($410,000 after tax) that positively
impacted the Company’s earnings by $.10 per share.

The Company’s income before income taxes was $4.2
million for the fourth quarter of fiscal year 2010, an
increase of $1.6 million from the $2.6 million reported in
the fourth quarter of fiscal year 2009. Gross profits
increased $2.0 million during the fourth quarter of fiscal
year 2010. The gross margin percentage for the fourth
quarter of fiscal year 2010 was 45%, up from the 40%
reported for the fourth quarter of fiscal year 2009. The

increase in gross margin percentage was attributable to a
significant decrease in subcontract costs throughout the
company. Subcontract costs were $8.2 million for the
fourth quarter of fiscal year 2010, a decrease of $3.1
million from the $11.3 million reported in the fourth quarter
of fiscal year 2009. Revenue less subcontract costs
increased $3.0 million or 10% over the prior year while
consolidated indirect costs for the fourth quarter of fiscal
year 2010 were $13.7 million, up only slightly from the
$13.3 million reported in the fourth quarter of fiscal year
2009. During the fourth quarter of fiscal year 2009, the
Company derecognized reserves of $562,000 ($410,000
after tax) that positively impacted the Company’s earnings
by $.10 per share.

Fiscal Year 2009 vs 2008
The Company’s income before income taxes was $9.5
million for fiscal year 2009, an increase of $3.9 million
from the $5.6 million reported in fiscal year 2008. Gross
profits increased $8.5 million during fiscal year 2009 as a
result of the increased revenue reported at the Parent
Company and Walsh offset by an increase in corporate
wide subcontract costs. The gross margin percentage for
fiscal year 2009 was 39.8%, down from the 45.3% reported
for fiscal year 2008. The decrease in gross margin
percentage was attributable to a significant increase in
subcontract costs throughout the Company. Subcontract
costs were $38.0 million for fiscal year 2009, an increase
of 141% from the $15.8 million reported in the prior year.
Gross margin as a percentage of revenue less subcontractor
revenue and costs increased slightly during fiscal year
2009. The increased gross profits were offset by higher
indirect costs in fiscal year 2009. Offsetting the increased
revenue was an increase in indirect operating expenses
throughout the company due to increased staffing and work
levels. Consolidated indirect costs for fiscal year 2009 were
$47.4 million, an increase of $4.4 million from the $43.0
million reported in fiscal year 2008. Staffing levels
throughout the company increased 16% during fiscal year
2009 as a result of increased manpower needs necessary to
accommodate the increase in revenue. The Company
reached settlements with Kuwait and the federal government
during fiscal year 2009. E&E, Inc. settled the Kuwait tax
dispute and the related accrual for uncertain tax position
charges and reserved the $925,000 balance of receivables
on the Middle East contracts which resulted in a net gain of
approximately $.24 per share. Additionally, the Company
maintains reserves for annual indirect rate adjustments due
to FAR and CAS compliance reviews by the federal

Celebrating 40 Years of Green Solutions

government which covered fiscal years 1996 through 2004.
During the fourth quarter of fiscal year 2009, the Company
derecognized reserves related to federal government
contracts of $562,000 ($410,000 after tax) as a result of a
settlement with the federal government. The federal
government settlement positively impacted the Company’s
earnings during the fourth quarter of fiscal year 2009 by
$.10 per share.

The Company’s income before income taxes was $2.6
million for the fourth quarter of fiscal year 2009, slightly
down from the $2.8 million reported in the fourth quarter of
fiscal year 2008. The fourth quarter of 2008 was impacted
by a gain on foreign exchange transactions of $360,000.
Gross profit increased during the fourth quarter of fiscal year
2009 as a result of increased revenues. The gross margin
percentage for the fourth quarter of fiscal year 2009 was
39.7%, down from the 43.8% reported for the fourth quarter
of fiscal year 2008. The decrease in gross margin
percentage was attributable to a significant increase in
subcontract costs throughout the company. Subcontract costs
were $11.3 million for fiscal year 2009, up $5.7 million from
the $5.6 million reported in the fourth quarter of fiscal year
2008. Gross margin as a percentage of revenue less
subcontractor revenue and costs increased slightly during the
fourth quarter of fiscal year 2009. Offsetting the increased
revenue was an increase in indirect operating expenses
throughout the company due to the increased staff and work
levels. Consolidated indirect costs for the fourth quarter of
fiscal year 2009 were $13.3 million, up 14% from the $11.7
million reported in the fourth quarter of fiscal year 2008.
During the fourth quarter of fiscal year 2009, the Company
derecognized reserves of $562,000 ($410,000 after tax) as
a result of a settlement with the federal government. The
federal government settlement positively impacted the
Company’s earnings during the fourth quarter of fiscal year
2009 by $.10 per share.

Income Taxes
The estimated effective tax rate for fiscal year 2010 is
37.3%, as compared to the 27.0% reported for fiscal year
2009. Excluding the favorable tax settlement in Kuwait, the
estimated effective tax rate for fiscal year 2009 was 36.1%.
The effective income tax rate had a nominal increase from
fiscal year 2009 to fiscal year 2010 due to a decrease in
partnership income. The noncontrolling interest on the
partnership income is removed from the effective income tax
rate and as the partnership income decreased, the
reduction to the overall effective tax rate went from a
negative 2.8 percent in fiscal year 2009 to a negative 1.3

18 Ecology and Environment, Inc.

percent in fiscal year 2010.

In March of 2009, the Company received a tax assessment
from the Kuwait Ministry of Finance in the amount of
approximately $2.6 million related to the contested taxes
resulting from the work performed for the Public Authority
for Assessment of Compensation for Damages Resulting
from Iraqi Aggression (PAAC). A liability had been
previously accrued for this tax including interest and
penalties of approximately $4.3 million. The Company
reached a favorable settlement with the Ministry of Finance
in April 2009. Accordingly, the Company derecognized the
remaining accrual of approximately $1.4 million (net of
deferred tax) by reducing the income tax provision by
$870,000 and reducing interest expense and general and
administrative costs each by $275,000.

Critical Accounting Policies and
Use of Estimates
Management's discussion and analysis of financial
condition and results of operations discuss the Company's
consolidated financial statements, which have been
prepared in accordance with accounting principles
generally accepted in the United States of America. The
preparation of these statements requires management to
make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On
an ongoing basis, management evaluates its estimates and
judgments, including those related to revenue recognition,
allowance for doubtful accounts, income taxes, impairment
of long-lived assets and contingencies. Management bases
its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates
under different assumptions or conditions.

Revenue Recognition
The Company’s revenues are derived primarily from the
professional and technical services performed by its
employees or, in certain cases, by subcontractors engaged to
perform on under contracts entered into with our clients. The
revenues recognized, therefore, are derived from our ability
to charge clients for those services under the contracts. Sales
and cost of sales at the Company’s South American
subsidiaries exclude tax assessments by governmental
authorities, which are collected by the Company from its
customers and then remitted to governmental authorities.

The Company employs three major types of contracts: “cost-
plus contracts,” “fixed-price contracts” and “time-and-
materials contracts.” Within each of the major contract types
are variations on the basic contract mechanism. Fixed-price
contracts generally present the highest level of financial and
performance risk, but often also provide the highest potential
financial returns. Cost-plus contracts present a lower risk, but
generally provide lower returns and often include more
onerous terms and conditions. Time-and-materials contracts
generally represent the time spent by our professional staff at
stated or negotiated billing rates.

Fixed price contracts are accounted for on the “percentage-
of-completion” method, wherein revenue is recognized as
project progress occurs. Time and material contracts are
accounted for over the period of performance, in proportion
to the costs of performance, predominately based on labor
hours incurred.
contract indicates that a loss will be incurred, the entire
estimated loss is charged to operations in the period the loss
becomes evident.

If an estimate of costs at completion on any

The use of the percentage of completion revenue recognition
method requires the use of estimates and judgment regarding
the project’s expected revenues, costs and the extent of
progress towards completion. The Company has a history of
making reasonably dependable estimates of the extent of
progress towards completion, contract revenue and contract
completion costs. However, due to uncertainties inherent in
the estimation process, it is possible that completion costs
may vary from estimates.

Most of our percentage-of-completion projects follow a
method which approximates the “cost-to-cost” method of
determining the percentage of completion. Under the cost-to-
cost method, we make periodic estimates of our progress
towards project completion by analyzing costs incurred to
date, plus an estimate of the amount of costs that we expect
to incur until the completion of the project. Revenue is then
calculated on a cumulative basis (project-to-date) as the total
contract value multiplied by the current percentage-of-
completion. The revenue for the current period is calculated
as cumulative revenues less project revenues already
recognized. The recognition of revenues and profit is
dependent upon the accuracy of a variety of estimates. Such
estimates are based on various judgments we make with
respect to those factors and are difficult to accurately
determine until the project is significantly underway.

For some contracts, using the cost-to-cost method in
estimating percentage-of-completion may overstate the
progress on the project. For projects where the cost-to-cost

method does not appropriately reflect the progress on the
projects, we use alternative methods such as actual labor
hours, for measuring progress on the project and recognize
revenue accordingly. For instance, in a project where a large
amount of equipment is purchased or an extensive amount of
mobilization is involved, including these costs in calculating
the percentage-of-completion may overstate the actual
progress on the project. For these types of projects, actual
labor hours spent on the project may be a more appropriate
measure of the progress on the project.

The Company’s contracts with the U.S. government contain
provisions requiring compliance with the Federal Acquisition
Regulation (FAR), and the Cost Accounting Standards (CAS).
These regulations are generally applicable to all of the
Company’s federal government contracts and are partially or
fully incorporated in many local and state agency contracts.
They limit the recovery of certain specified indirect costs on
contracts subject to the FAR. Cost-plus contracts covered by
the FAR provide for upward or downward adjustments if
actual recoverable costs differ from the estimate billed. Most
of our federal government contracts are subject to
termination at the convenience of the client. Contracts
typically provide for reimbursement of costs incurred and
payment of fees earned through the date of such termination.

The Company maintains reserves for annual indirect rate
submittal adjustments due to FAR and CAS compliance
reviews by the federal government which covered fiscal years
1996 through 2004. The reserve decreased $562,000
($410,000 after tax) during the fourth quarter of fiscal year
2009 as a result of a settlement with the federal government.
The federal government settlement positively impacted the
Company’s earnings during the fourth quarter of fiscal year
2009 by $.10 per share.

Federal government contracts are subject to the FAR and some
state and local governmental agencies require audits, which
are performed for the most part by the Defense Contract Audit
Agency (DCAA). The DCAA audits overhead rates, cost
proposals, incurred government contract costs, and internal
control systems. During the course of its audits, the DCAA may
question incurred costs if it believes we have accounted for
such costs in a manner inconsistent with the requirements of
the FAR or CAS and recommend that our U.S. government
financial administrative contracting officer disallow such costs.
Historically, we have not experienced significant disallowed
costs as a result of such audits. However, we can provide no
assurance that such audits will not result in material
disallowances of incurred costs in the future.

Celebrating 40 Years of Green Solutions

The Company maintains reserves for cost disallowances on its
cost based contracts as a result of government audits.
Government audits have been completed and final rates have
been negotiated through fiscal year 2001. The Company has
estimated its exposure based on completed audits, historical
If
experience and discussions with the government auditors.
these estimates or their related assumptions change, the
Company may be required to record additional charges for
disallowed costs on its government contracts.

Allowance for Doubtful Accounts
and Contract Adjustments
We reduce our accounts receivable and costs and
estimated earnings in excess of billings on contracts in
process by establishing an allowance for amounts that, in
the future, may become uncollectible or unrealizable,
respectively. We determine our estimated allowance for
uncollectible amounts and allowance for contract
adjustments based on management’s judgments regarding
our operating performance related to the adequacy of the
services performed, the status of change orders and claims,
our experience settling change orders and claims and the
financial condition of our clients, which may be dependent
on the type of client and current economic conditions.

Deferred Income Taxes
We use the asset and liability approach for financial
accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances
based on our judgments and estimates are established
when necessary to reduce deferred tax assets to the amount
expected to be realized in future operating results.
Management believes that realization of deferred tax assets
in excess of the valuation allowance is more likely than not.
Our estimates are based on facts and circumstances in
existence as well as interpretations of existing tax
regulations and laws applied to the facts and
circumstances, with the help of professional tax advisors.
Therefore, we estimate and provide for amounts of
additional income taxes that may be assessed by the
various taxing authorities.

Uncertain Tax Positions
A tax position is a position in a previously filed tax return or
a position expected to be taken in a future tax filing that is

20 Ecology and Environment, Inc.

reflected in measuring current or deferred income tax assets
and liabilities. Tax positions shall be recognized only when it
is more likely than not (likelihood of greater than 50%),
based on technical merits, that the position will be
sustained. Tax positions that meet the more likely than not
threshold should be measured using a probability weighted
approach as the largest amount of tax benefit that is greater
than 50% likely of being realized upon settlement. Whether
the more-likely-than-not recognition threshold is met for a
tax position, is a matter of judgment based on the individual
facts and circumstances of that position evaluated in light of
all available evidence. Company recognizes interest
accrued related to unrecognized tax benefits in interest
expense and penalties in administrative and indirect
operating expenses.

Changes in Corporate Entities
On January 28, 2010 the Company purchased an
additional equity of 18.7% of Walsh from noncontrolling
shareholders for $3,000,000. One third of the purchase
price was paid in cash, one third was paid with the
Company's stock, and the remainder was taken as loans
carrying an interest rate of 5% to be repaid over a two year
period. The purchase price that was paid to the
noncontrolling shareholders was at a premium over the
book value of the stock.

On March 1st, Walsh purchased an 80% ownership interest
in Lowham - Walsh Environmental Services LLC. This
transaction was an asset purchase of the former Lowham
Engineering LLC in Wyoming. Walsh contributed cash and
assets into the newly formed entity and issued a five year
promissory note bearing a six percent annualized interest
rate for the assets of the former company.

On August 23, 2010 the Company purchased a 60%
ownership interest in ECSI, LLC. This is a Lexington,
Kentucky based engineering and environmental consulting
company that specializes in mining work. The Company
paid $1.0 million for this ownership interest. The newly
formed company will be consolidated into the Company’s
financial reporting for the first quarter of fiscal year 2011.

Inflation
Inflation has not had a material impact on the Company’s
business because a significant amount of the Company’s
contracts are either cost based or contain commercial rates
for services that are adjusted annually.

Management’s Report on Internal Control
Over Financial Reporting
To the Board of Directors and Stockholders of
Ecology and Environment, Inc.

Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Shareholders
of Ecology and Environment, Inc.

Our management is responsible for establishing and
maintaining adequate internal control over financial reporting.
As defined in Exchange Act Rule 13a-15(f), internal control over
financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial
officer and effected by our Board of Directors, management
and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in
accordance with U.S. GAAP. Internal controls include those
policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets; (ii) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with U.S. GAAP and that our receipts and
expenditures are being made only in accordance with
authorizations of our management and directors; and (iii)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our consolidated
financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate. Accordingly, even
effective internal control over financial reporting can only provide
reasonable assurance of achieving their control objectives.

Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we assessed the effectiveness of our internal
control over financial reporting as of July 31, 2010 based on
the criteria in Internal Control—Integrated Framework issued by
the COSO. Based upon this assessment, management has
concluded that our internal control over financial reporting was
effective as of July 31, 2010.

This annual report does not include an attestation report of the
Company’s registered public accounting firm regarding internal
control over financial reporting.

By:

We have audited the accompanying consolidated balance
sheets of Ecology and Environment, Inc. and its subsidiaries
(Collectively, the Company) as of July 31, 2010 and 2009, and
the related consolidated statements of income, changes in
shareholders’ equity and comprehensive income, and cash flows
for each of the years in the three-year period ended July 31,
2010. The Company’s management is responsible for these
financial statements. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but
not for purpose of expressing an opinion on the effectiveness of
the company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements,
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of July 31, 2010 and 2009, and
the results of its operations and its cash flows for each of the
years in the three-year period ended July 31, 2010 in conformity
with accounting principles generally accepted in the United
States of America.

Schneider Downs & Co., Inc.
Pittsburgh, Pennsylvania
October 28, 2010

Chief Executive Officer

Chief Financial and
Accounting Officer

Celebrating 40 Years of Green Solutions

Consolidated Balance Sheets

Assets

Current assets:

Cash and cash equivalents
Investment securities available for sale
Contract receivables, net
Deferred income taxes
Income tax receivable
Other current assets

July 31, 2010

July 31, 2009

14,229,894
1,305,739
47,096,456
3,557,156
—

2,142,301

16,571,186
1,212,405
41,693,034
4,137,516

802,926

2,372,919

Total current assets

68,331,546

66,789,986

Property, building and equipment, net of accumulated depreciation,
$21,040,900 and $19,302,306

Deferred income taxes
Other assets

Total assets

Liabilities and Shareholders' Equity
Current liabilities:

Accounts payable
Accrued payroll costs
Income taxes payable
Deferred revenue
Current portion of long-term debt and capital lease obligations
Other accrued liabilities

8,664,453

1,291,297
1,671,636

8,258,441

1,160,444
1,599,204

79,958,932

$77,808,075

$10,863,390
7,451,310
1,083,911
236,737
928,027
8,818,179

$13,866,425
7,216,316
—

103,509
411,331
9,049,995

Total current liabilities

29,381,554

30,647,576

Income taxes payable
Deferred income taxes
Long-term debt and capital lease obligations

Commitments and contingencies (see note #17)

Shareholders' equity:

Preferred stock, par value $.01 per share;
authorized - 2,000,000 shares; no shares issued

Class A common stock, par value $.01 per share;
Authorized - 6,000,000 shares; issued - 2,685,072 and 2,677,651 shares

Class B common stock, par value $.01 per share;
Authorized - 10,000,000 shares; issued - 1,708,653 and 1,716,074 shares

Capital in excess of par value

Retained earnings

Accumulated other comprehensive income

Treasury stock - Class A common, 136,461 and 242,290 shares;
Class B common, 64,801 shares, at cost

Total Ecology and Environment, Inc., shareholders' equity
Noncontrolling interests

Total shareholders' equity

Total liabilities and shareholders' equity

The accompanying notes are an integral part of these consolidated financial statements.

22 Ecology and Environment, Inc.

286,523
289,531
767,302

—

278,782
152,836
403,941

—

26,850

26,776

17,088

20,059,200

25,800,803

815,906

(1,855,466)

44,864,381
4,369,641

17,162

20,093,952

23,290,768

441,965

(

2,819,138

)

41,051,485

5,273,455

49,234,022

46,324,940

$79,958,932

77,808,075

Consolidated Statements of Income

2010

Year ended July 31,
2009

2008

Revenue

$144,874,534

$146,886,938

$110,532,816

Cost of professional services and other direct operating expenses

49,623,816

50,383,876

44,658,180

Subcontract costs

Administrative and indirect operating expenses

Marketing and related costs

Depreciation

Income from operations

Interest expense

Interest income

Other expense

Gain on sale of property and equipment

Net foreign currency exchange gain (loss)

Income before income tax provision

Income tax provision

Net income

31,068,357

38,025,409

15,833,829

38,166,067

34,309,408

31,013,505

14,438,785

13,101,999

11,950,306

1,684,406

1,620,829

1,483,931

9,893,103

9,445,417

5,593,065

(222,558)

107,211

(68,349)

809,200

(59,718)

(77,238)

202,052

(41,064)

—

(431,287)

441,190

(183,246)

—

(78,930)

134,009

10,458,889

9,450,237

5,553,731

3,902,222

2,560,897

2,113,007

$6,556,667

$6,889,340

3,440,724

Net income attributable to the noncontrolling interest

(2,299,060)

(1,668,066)

(1,606,338)

Net income attributable to Ecology and Environment, Inc.

$4,257,607

$5,221,274

$1,834,386

Net income per common share: basic and diluted

$1.02

$1.27

$0.43

Weighted average common shares outstanding: basic and diluted

4,160,816

4,115,921

4,259,663

The accompanying notes are an integral part of these consolidated financial statements.

A scientist collects data for noise and vibration studies for E & E’s supplemental EIR
addressing the expansion of the Wild Goose Natural Gas Storage Facility for the
California Public Utilities Commission.

Celebrating 40 Years of Green Solutions

Consolidated Statements of Cash Flows

Cash flows from operating activities:

Net income

Year ended July 31,
2009

2010

2008

$ 6,556,667

6,889,340

$ 3,440,724

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation

Provision for deferred income taxes

Share-based compensation expense

Tax impact of share based compensation

Gain on sale of property and equipment

Provision for contract adjustments

(Increase) decrease in:

- contracts receivable
- other current assets
- income tax receivable
- other non-current assets

Increase (decrease) in:
- accounts payable

- accrued payroll costs
- income taxes payable

- deferred revenue

- other accrued liabilities

Net cash provided by operating activities

Cash flows provided by (used in) investing activities:

Acquisition of noncontrolling interest of subsidiary

Purchase of Lowham Engineering LLC

Purchase of property, building and equipment

Proceeds from sale of property and equipment
Purchase of investment securities

Cash used in investing activities

Cash flows provided by (used in) financing activities:

Dividends paid

Proceeds from debt
Repayment of debt and capital lease obligations

Distributions to noncontrolling interests
Proceeds from sale of subsidiary shares to noncontrolling interests
Purchase of treasury stock

Net cash used in financing activities

1,684,406

1,620,829

1,483,931

472,455

485,945

102,737

(809,200)

637,846

(5,661,388)
233,414
802,926
(64,430)

(3,120,409)
149,316
1,066,930

133,228

1,742,493

446,412
—

—

(88,387)

(3,874,581)

(201,671)
(787,370)

18,793

4,382,635

1,363,854
(671,355)

11,687

888,140

339,625

33,457
—

360,505

(4,412,095)
(485,707)
1,341,657
109,571

(969,721)

(349,043)
(470,187)

1,031

(236,704)

(1,

170,196

)

1,495,992

2,433,739

9,682,483

2,807,880

(1,000,000)

(200,000)
(1,992,724)

959,200
(55,791)

(27,879)

(116,677)

—

(1,869,016)
—
(39,210)

(1,447,573)
—
(1,072,186)

(2,289,315)

(1,9

,
36 105

)

(2,636,436)

(1,684,482)

(1,546,359)

(1,492,207)

468,038
(778,035)

(845,106)
227,562
—

632,185
(1,942,882)

(625,677)
69,108
(1,832,123)

1,014,100
(369,760)

(752,882)
—

(5,636)

(2,612,023)

(5,245,748)

(1,606,385)

Effect of exchange rate changes on cash and cash equivalents

126,307

(107,538)

58,512

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period

(2,341,292)
16,571,186

2,393,092
14,178,094

(1,376,429)
15,554,523

Cash and cash equivalents at end of period

$14,229,894

$ 16,571,186

$ 14,178,094

The accompanying notes are an integral part of these consolidated financial statements.

24 Ecology and Environment, Inc.

Consolidated Statements of Changes
in Shareholders’ Equity

Balance at July 31, 2007

Net income
Foreign currency translation adjustment

Cash dividends paid ($.36 per share)

Unrealized investment gain, net

Repurchase of Class A common stock

Issuance of stock under stock award plan

Share-based compensation expense

Tax impact of share based compensation

FIN 48 Adjustment

Elimination of noncontrolling paid in capital

Distributions to noncontrolling interests

Other

Balance at July 31, 2008

Net income
Foreign currency translation adjustment

Cash dividends paid ($.39 per share)

Unrealized investment gain, net

Conversion of common stock - B to A

Repurchase of Class A common stock

Issuance of stock under stock award plan

Share-based compensation expense

Sale of subsidiary shares to noncontrolling interests

Distributions to noncontrolling interests

Other

Balance at July 31, 2009

Net Income
Foreign currency translation adjustment

Cash dividends paid ($.42 per share)

Unrealized investment gain, net

Conversion of common stock - B to A

Issuance of stock under stock award plan

Share-based compensation expense

Tax impact of share based compensation
Sale of subsidiary shares to noncontrolling interests

Distributions to noncontrolling interests
Purchase of additional noncontrolling interests
Other

Balance at July 31, 2010

Common Stock

Class

Amount

2,661,498

1,732,227

$26,615

$17,323

}

Capital in
Excess of
Par Value

Retained
Earnings

Comprehensive
Income (loss)

Treasury Stock

Amount

Noncontrolling
Interest

Comprehensive
Income

$20,051,446

$19,365,253

$299,102

168,821

$(1,692,496)

$3,582,968

$5,582,403

—
—

—

—
—

—

—
—

—

(412,173)

339,625

33,457

—

1,902

1,834,386
—

(1,535,492)

—

—
—

—

536,446

—

(881)

—

—
—

—

536

(41,094)

—
—

—

1,878

—
—

—

(5,636)

412,173

—
—

—

1,606,338

(224,703)

—

—
—

(58,543)

16,069

— (752,882)
—

(16,704)

3,440,724

311,743

—

(881)

—

—
—

—

—
—

2,661,498

$26,615

1,732,227

$17,323

}

$20,014,257

$19,664,147

$834,667

130,141

$(1,302,663)

$4,169,247

$9,333,989

—

—
—

—

16,153

(16,153)
—

—

}

—

—
—

—

161

(161)
—

—

—
—

—

(376,176)

446,412

—

9,459

5,221,274
—

(1,594,653)
—
—

—

(402,403)

—

9,701
—

—

—
—

—

—
—

—

207,941
(37,580)

(1,832,123)

376,176

—

6,589

(60,528)

—

1,668,066
20,590
—

—
—

—

41,229

(625,677)

6,889,340
(381,813)
—

9,701
—

—
—

—

2,677,651

$26,776

1,716,074

$17,162

}

$20,093,952

$23,290,768

$441,965

307,091

$(2,819,138)

$5,273,455

$6,517,228

—

—
—

—

7,421
(7,421)
—

—

—
—
—

—
—

—

—
—

—

(74) }

—

—
—
—

—
—

—

—
—

—

(372,172)

485,945

102,737
—
—

(254,181)
2,919

4,257,607
—

(1,747,572)
—

—

—
—
—

—
—

—

423,493
—

23,159
—

—

—
—
—

—

—
—

—

—
—

—

(42,675)

372,172

—

—
—
—

—

—
—
—

(72,711)
—

(66,667)
3,513

616,670
(25,170)

2,299,060
(59,236)
—

—

—
227,562

(845,106)
(2,526,094)
—

6,556,667
291,546
—

23,159
—

—

—
—
—

—
—

2,685,072
1,708,653

$26,850

$17,088

}

$20,059,200

$25,800,803

$815,906

201,262

$(1,855,466)

$4,369,641

$6,871,372

The accompanying notes are an integral part of these consolidated financial statements.

Celebrating 40 Years of Green Solutions

Notes to Consolidated Financial Statements

1. Summary of Operations and Basis

d. Codification

of Presentation

individuals

Ecology and Environment, Inc., (“E & E” or “Company”) is
a global broad-based environmental consulting firm
whose underlying philosophy is to provide professional
services worldwide so that sustainable economic and
human development may proceed with minimum negative
impact on the environment. The Company’s staff
is
comprised of
representing 85 scientific,
engineering, health, and social disciplines working
together in multidisciplinary teams to provide innovative
environmental solutions. The Company has completed
more than 50,000 projects for a wide variety of clients in
96 countries, providing environmental solutions in nearly
every ecosystem on our planet. Revenues reflected in the
Company's consolidated statements of income represent
services rendered for which the Company maintains a
primary contractual
relationship with its customers.
Included in revenues are certain services outside the
Company's normal operations which the Company has
elected to subcontract to other contractors.

During fiscal years ended July 31, 2010, 2009 and 2008,
the percentages of total revenues derived from contracts
exclusively with the United States Department of Defense
(DOD) were 8%, 14% and 11%.

2. Summary of Significant Accounting Policies
a. Consolidation

The consolidated financial statements include the accounts
of the Company and its wholly owned and majority owned
subsidiaries. Also reflected in the consolidated financial
statements is the 50% ownership in the Chinese operating
joint venture, The Tianjin Green Engineering Company.
This joint venture is accounted for under the equity method.
All significant
intercompany transactions and balances
have been eliminated.

b. Use of estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America requires management
to make
estimates and assumptions as of the date of the financial
statements, which affect the reported values of assets and
liabilities and revenues and expenses and disclosures of
contingent assets and liabilities. Actual results may differ
from those estimates.

c. Reclassifications

Certain prior year amounts were reclassified to conform
to the fiscal year 2010 consolidated financial statement
presentation.

In June 2009, the Financial Accounting Standards Board
(FASB) voted to approve the FASB Accounting Standards
Codification (Codification) as
the single source of
authoritative nongovernmental U.S. generally accepted
accounting principles. The Company adopted the
Codification requirements beginning with its October 31,
2009 financial statements. The FASB Codification does
not change U.S. generally accepted accounting principles,
but combines all authoritative standards such as those
issued by the FASB, the American Institute of Certified
Public Accountants and the Emerging Issues Task Force into
a comprehensive, topically organized online database.

e. Revenue recognition

Substantially all of the Company's revenue is derived
from environmental consulting work. The consulting
revenue is principally derived from the sale of labor
hours. The consulting work is performed under a mix of
fixed price, cost-type, and time and material contracts.
Contracts are required from all customers. Revenue is
recognized as follows:

Contract Type Work Type Revenue Recognition Policy

Time and
Materials

Consulting

As incurred at contract
rates.

Fixed Price

Consulting

Cost-Type

Consulting

Percentage of completion,
approximating the ratio of
either total costs or Level of
Effort (LOE) hours incurred
to date to total estimated
costs or LOE hours.

Costs as incurred. Fixed
fee portion is recognized
using percentage of
completion determined by
the percentage of level of
effort (LOE) hours incurred
to total LOE hours in the
respective contracts.

Substantially all of the Company's cost-type work is with
federal governmental agencies and, as such, is subject to
audits after contract completion. Under these cost-type
contracts, provisions for adjustments to accrued revenue
are recognized on an annual basis and based on past
audit settlement history. Government audits have been
completed and final rates have been negotiated through
fiscal year 2001. The balance in the allowance for
contract adjustments accounts principally represents a

26 Ecology and Environment, Inc.

reserve for contract adjustments for the fiscal years
1996-2010.

We reduce our accounts receivable and costs and
estimated earnings in excess of billings on contracts in
process by establishing an allowance for amounts that, in
the future, may become uncollectible or unrealizable,
respectively. We determine our estimated allowance for
uncollectible amounts based on management’s
judgments regarding our operating performance related
to the adequacy of the services performed, the status of
change orders and claims, our experience settling change
orders and claims and the financial condition of our
clients, which may be dependent on the type of client and
current economic conditions.

Change orders can occur when changes in scope are
made after project work has begun, and can be initiated by
either the Company or its clients. Claims are amounts in
excess of the agreed contract price which the Company
seeks to recover from a client for customer delays and / or
errors or unapproved change orders that are in dispute.
Costs related to change orders and claims are recognized
as incurred. Revenues are recognized on change orders
(including profit) when it is probable that the change order
will be approved and the amount can be reasonably
estimated. Revenue on claims is not recognized until the
claim is approved by the customer.

All bid and proposal and other pre-contract costs are
expensed as incurred. Out of pocket expenses such as
travel, meals, field supplies, and other costs billed direct to
contracts are included in both revenues and cost of
professional services.
the
Company’s South American subsidiaries exclude tax
assessments by governmental authorities, which are
collected by the Company from its customers and then
remitted to governmental authorities.

Sales and cost of sales at

f. Investment securities

Investment securities have been classified as available for
sale and are stated at estimated fair value. Unrealized
gains or losses related to investment securities available for
sale are reflected in accumulated other comprehensive
income, net of applicable income taxes in the consolidated
balance sheets and statements of changes in shareholders'
equity and comprehensive income. The cost of securities
sold is based on the specific identification method. The
Company had cumulative unrealized gains of
approximately $36,000 and $13,000 in fiscal years 2010
and 2009, respectively.

g. Property, building and equipment, depreciation

and amortization

Property, building and equipment are stated at the lower of
fair market value. Office furniture and all
cost or

equipment are depreciated on the straight-line method for
book purposes, excluding computer equipment which is
depreciated on the accelerated method for book purposes,
and on accelerated methods for tax purposes over the
estimated useful lives of the assets (three to seven years).
The headquarters building is depreciated on the straight-
line method for both book and tax purposes over an
estimated useful
life of 32 years. Its components are
depreciated over their estimated useful lives ranging from 7
to 15 years. The additional building and warehouse is
depreciated on the straight-line method over an estimated
useful life of 40 years for both book and tax purposes.
Leasehold improvements are amortized for book purposes
over the terms of the leases or the estimated useful lives of
for
the assets, whichever
maintenance and repairs are charged to expense as
incurred. Expenditures for improvements are capitalized.
When property or equipment is retired or sold, any gain or
loss on the transaction is reflected in the current year's
earnings.

shorter. Expenditures

h. Fair value of financial instruments

The Company records and discloses certain financial
assets and liabilities at their fair value. The asset’s or
liability’s fair value measurement level within the fair
value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of
observable inputs and minimize the use of unobservable
inputs. The Company has not elected a fair value option
on any assets or liabilities.

The three levels of the hierarchy are as follows:
Level 1 Inputs – Unadjusted quoted prices in active
markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities. Generally this
includes debt and equity securities and derivative
contracts that are traded on an active exchange market
(e.g., New York Stock Exchange) as well as certain U.S.
Treasury and U.S. Government and agency mortgage-
backed securities that are highly liquid and are actively
traded in over-the-counter markets.
Level 2 Inputs – Quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or
similar assets or liabilities in inactive markets; or
valuations based on models where the significant inputs
are observable (e.g., interest rates, yield curves, credit
risks, etc.) or can be corroborated by observable market
data.
Level 3 Inputs –
significant inputs are not observable. The unobservable
inputs reflect the Company’s own assumptions about the
assumptions that market participants would use.

Valuations based on models where

Celebrating 40 Years of Green Solutions

The following table presents the level within the fair value
hierarchy at which the Company’s financial assets are
measured on a recurring basis.

Financial assets as of July 31, 2010:

Level 1

Level 2

Level 3

Total

$4,852,348

—

$4,852,348

Assets

Money market
mutual funds

Investment securities
available for sale

Assets

Money market
mutual funds

Investment securities
available for sale

50,895

1,254,844

Total

$4,903,243

$1,254,844

Financial assets as of July 31, 2009:

—

1,305,739

$6,158,087

Level 1

Level 2

Level 3

Total

$6,279,470

—

$6,279,470

50,895

1,161,510

Total

$6,330,365

$1,161,510

—

1,212,405

$7,491,875

receivables, notes

The carrying amount of cash and cash equivalents,
contract
receivable and accounts
payable at July 31, 2010 and July 31, 2009 approximate
Long-term debt consists of bank loans and
fair value.
capitalized equipment leases. Based on the Company's
assessment of
financial market and
corresponding risks associated with the debt, management
believes that the carrying amount of long-term debt at July
31, 2010 and July 31, 2009 approximates fair value.
There were no financial instruments classified as level 3.

the current

i. Translation of foreign currencies

The financial statements of foreign subsidiaries where the
local currency is the functional currency are translated into
U.S. dollars using exchange rates in effect at period end for
assets and liabilities and average exchange rates during
each reporting period for results of operations. Translation
adjustments are deferred in accumulated other
comprehensive income.

The financial statements of foreign subsidiaries located in
highly inflationary economies are remeasured as if the
functional
currency were the U.S. dollar. The
remeasurement of local currencies into U.S. dollars creates
transaction adjustments which are included in net income.
There were no highly inflationary economy translation
adjustments for fiscal years 2008-2010.

j. Income taxes

The Company follows the asset and liabilities approach to
account for income taxes.
This approach requires the
recognition of deferred tax assets and liabilities for the

28 Ecology and Environment, Inc.

expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets
Although realization is not assured,
and liabilities.
management believes it is more likely than not that the
recorded net deferred tax assets will be realized. Since in
the
some cases management has utilized estimates,
amount of the net deferred tax asset considered realizable
could change in the near term. No provision has been
made for United States income taxes applicable to
undistributed earnings of foreign subsidiaries as it is the
intention of the Company to indefinitely reinvest those
earnings in the operations of those entities.

Income tax expense includes U.S. and international
the
income taxes, determined using an estimate of
Company’s annual effective tax rate. A deferred tax
liability is recognized for all taxable temporary differences,
and a deferred tax asset is recognized for all deductible
temporary differences and net operating loss
carryforwards.

The Company has significant deferred tax assets, resulting
principally from contract reserves, accrued compensation
and fixed assets. The Company periodically evaluates the
likelihood of realization of deferred tax assets, and has
determined that no valuation allowance is necessary.

Additionally, the FASB ASC Topic Income Taxes, prescribes
a recognition threshold and measurement principles for
financial statement disclosure of tax positions taken or
This topic also
expected to be taken on a tax return.
provides guidance on derecognition, classification,
interest and penalties, accounting in interim period,
disclosure and transition.

A tax position is a position in a previously filed tax return or
a position expected to be taken in a future tax filing that is
reflected in measuring current or deferred income tax
assets and liabilities. Tax positions shall be recognized only
when it is more likely than not (likelihood of greater than
50%), based on technical merits, that the position will be
sustained. Tax positions that meet the more likely than not
threshold should be measured using a probability
weighted approach as the largest amount of tax benefit
that is greater than 50% likely of being realized upon
settlement. Whether the more-likely-than-not recognition
threshold is met for a tax position, is a matter of judgment
based on the individual facts and circumstances of that
position evaluated in light of all available evidence.
Company
interest accrued related to
unrecognized tax benefits in interest expense and penalties
in administrative and indirect operating expenses.

recognizes

k. Pension costs

Ecology and Environment Inc. (Parent Company) has a non-
contributory defined contribution plan providing deferred

benefits for substantially all of
the Parent Company's
employees. The annual expense of the Parent Company's
supplemental defined contribution plan is based on a
percentage of eligible wages as authorized by the Parent
Company's Board of Directors. Benefits under this plan are
funded as accrued. Walsh Environmental (Walsh) has a
defined contribution plan providing deferred benefits for
substantially all of their employees. Walsh contributes a
percentage of eligible wages up to a maximum of 4%.
Expenses are recorded as they are accrued.

l. Stock based compensation

The FASB ASC Topic Compensation requires companies to
expense the value of employee stock options and similar
awards. Share-based payment awards result in a cost that
will be measured at fair value on the awards' grant date,
based on the estimated number of awards that are expected
to vest. Compensation cost for awards that vest would not be
reversed if the awards expire without being exercised.

m. Earnings per share (EPS)

Basic and diluted EPS is computed by dividing income
available to common shareholders by the weighted
average number of common shares outstanding for the
period. The Company allocates undistributed earnings
between the classes on a one-to-one basis when
computing earnings per share. As a result, basic and fully
diluted earnings per Class A and Class B shares are equal
amounts.
See Note 15 to Consolidated Financial
Statements for additional information.

n. Comprehensive Income

Comprehensive income is defined as "the change in
equity of a business enterprise during a period from
transactions and other events and circumstances from
non-owner sources." The term "comprehensive income" is
used to describe the total net earnings plus other
comprehensive income. For the Company, other
comprehensive income includes currency translation
adjustments on foreign subsidiaries and unrealized gains
or losses on available-for-sale securities.

o. Impairment of Long-Lived Assets

The Company assesses recoverability of the carrying value
of long-lived assets by estimating the future net cash flows
(undiscounted) expected to result from the asset, including
eventual disposition. If the future net cash flows are less
than the carrying value of the asset, an impairment loss is
recorded equal
to the difference between the asset's
carrying value and fair value. The Company identified no
events or changes in circumstances that necessitated an
evaluation for an impairment of long-lived assets.

p. Goodwill

The total goodwill of approximately $1.1 million is subject
to an annual assessment for impairment. The Company’s
most recent annual impairment assessment for goodwill
was completed during the fourth quarter of fiscal year
2010. The results of this assessment showed that the fair
values of the reporting units, using a discounted cash flow
method, to which goodwill is assigned was in excess of the
book values of the respective reporting units, resulting in no
is also assessed for
goodwill
impairment between annual assessments whenever events
or circumstances make it more likely than not that an
impairment may have occurred. The Company identified
no events or changes in circumstances that necessitated an
evaluation for an impairment of goodwill.

impairment. Goodwill

3. Cash and Cash Equivalents
The Company's policy is to invest cash in excess of
operating requirements in income-producing short-term
investments. At July 31, 2010 and 2009, short-term
investments consist of money market funds. Short-term
investments amounted to approximately $4.9 million at
July 31, 2010 and $6.3 million at July 31, 2009 and are
reflected in cash and cash equivalents in the accompanying
consolidated balance sheets and statements of cash flows.

4. Contract Receivables, net

United States government -

Billed
Unbilled

July 31,

2010

2009

$2,445,658
3,528,728
5,974,386

$2,546,741
3,784,894
6,331,635

Commercial customers and state and municipal governments -

Billed
Unbilled

Allowance for doubtful
accounts and contract adjustments -

22,772,335
21,723,408
44,495,743

21,051,958
16,829,779
37,881,737

(3,373,673)

(2,520,338)

$47,096,456

$41,693,034

United States government receivables arise from long-term
U.S. government prime contracts and subcontracts.
Unbilled receivables result from revenues which have been
earned, but are not billed as of period-end. The above
unbilled balances are comprised of incurred costs plus fees
not yet processed and billed; and differences between year-
to-date provisional billings and year-to-date actual
contract costs incurred. Management anticipates that the
July 31, 2010 unbilled receivables will be substantially
billed and collected within one year. Within the above
billed balances are contractual retainages in the amount of
approximately $546,000 at July 31, 2010 and $217,000
at July 31, 2009. Management anticipates that the July 31,
2010 retainage balance will be substantially collected
within one year.

Celebrating 40 Years of Green Solutions

5. Property, Building and Equipment, net

Land and land improvements
Buildings and building improvements
Equipment
Information technology equipment
Office furniture and equipment
Leasehold improvements and other

Accumulated depreciation
and amortization

2010

July 31,

2009

$
393,051
11,927,345
3,198,889
8,660,433
3,501,428
2,024,207
$29,705,353

$ 673,970
11,440,973
2,614,176
7,871,267
3,182,009
1,778,352
$27,560,747

(21,040,900)

(19,302,306)

$ 8,664,453

$ 8,258,441

6. Line of Credit
The Company maintains an unsecured line of credit
available for working capital and letters of credit of $20.2
million at interest rates ranging from 3% to 5% at July 31,
2010. Other lines are available solely for letters of credit in
the amount of $13.5 million. The Company guarantees
the line of credit of Walsh.
Its lenders have reaffirmed the
Company’s lines of credit within the past twelve months. At
July 31, 2010 and July 31, 2009 the Company had letters
of credit outstanding totaling approximately $4.9 million
and $.6 million, respectively.
After letters of credit and
loans, there was $28.9 million of availability under the lines
of credit at July 31, 2010.

7. Debt and Capital Lease Obligations
Debt inclusive of capital lease obligations consists of the
following:

Various bank loans and advances at
subsidiaries with interest rates ranging
from 5% to 14%
Capital lease obligations at subsidiaries
with varying interest rates averaging 11%

July 31,

2010

2009

$1,450,247

$531,031

245,082
1,695,329

284,241
815,272

Current portion of debt and capital lease
obligations
Long-term debt and capital lease obligations

(928,027)
$767,302

(411,331)
$403,941

The aggregate maturities of long-term debt and capital lease
obligations at July 31, 2010 are as follows:

Fiscal Year
2011
2012
2013
2014
2015
Thereafter

Amount
$928,027
610,184
92,549
52,440
12,129
—
$1,695,329

8. Income Taxes
The provision (benefit) for income taxes for the years ended
July 31 was as follows:

Current:

Federal
State
Foreign

Deferred:
Federal
State
Foreign

Fiscal Year

2010

2009

2008

$ 1,381,857
411,636
1,636,274
$ 3,429,767

$ (864,823)
393,385
1,289,842
$ 818,404

72,694
172,021
980,152
$ 1,224,867

262,326
77,151
132,978
472,455
$
$ 3,902,222

$ 2,072,947
33,019
(363,473)
$ 1,742,493
$ 2,560,897

$ 1,117,191
84,164
(313,215)

888,140
$
$ 2,113,007

A reconciliation of income tax expense (benefit) using the
statutory U.S.
income tax rate compared with actual
income tax expense (benefit) for the years ended July 31
was as follows:

2010

2009

2008

U.S. federal statutory income tax rate
Re-evaluation of tax contingencies
Income from “pass-through” entities
taxable to noncontrolling partners
International rate differences
Foreign dividend income
State taxes, net of federal benefit
Other

34.0%
—

(1.3%)
(0.9%)
1.9%
3.1%
0.5%

34.0%
(9.1%)

(2.8%)
(0.1%)
0.6%
2.7%
1.5%

34.0%
—

(5.8%)
(0.1%)
0.7%
4.1%
5.1%

Total

37.3%

27.0%

38.0%

The significant components of deferred tax assets
(liabilities) as of July 31 are as follows:

2010
Current Noncurrent

2009
Current Noncurrent

$2,946,530

—

$3,137,879

—

527,294

—

574,558

561,213

400,350

705,454

413,399

—

234,693

—

81,481

80,666

—

73,420

19,259

—

(156,705)
206,119

(51,663)
99,957

(205,169)
406,673

(52,162)
143,169

$3,557,157

$1,291,297

$4,137,516

$1,160,445

Contract and
other reserves
Fixed assets and
intangibles
Accrued
compensation
and expenses
Net operating
loss
carryforwards
Foreign and state
income taxes
Accrued interest
Federal benefit
on state deferred
taxes
Other
Net d
assets

eferred tax

Other
Net d
liabilities

eferred tax

—

(289,531)

—

(152,836)

(289,531)

—

(152,836)

30 Ecology and Environment, Inc.

The FASB ASC Topic Income Taxes clarifies the accounting
for uncertainty in income taxes and reduces the diversity in
current practice associated with the financial statement
recognition and measurement of a tax position taken or
expected to be taken in a tax return by defining a “more-
likely-than-not” threshold regarding the sustainability of
the position. The first step involves assessing whether the
tax position is more likely than not to be sustained upon
examination based on the technical merits. The second
step involves measurement of the amount to recognize.
Tax positions that meet the more likely then not threshold
are measured at the largest amount of tax benefit greater
than 50% likely of being realized upon ultimate finalization
with tax authorities.
The Company recognizes interest
accrued related to unrecognized tax benefits in interest
expense and penalties in administrative and indirect
operating expenses.

fiscal year 2010,

there was no one item that
For
significantly impacted the change in the deferred tax assets
and liabilities.

For fiscal year 2009, the net change in the deferred tax
assets and liabilities was due mainly to a decrease in a
deferred tax asset related to the settlement of a liability for
uncertain tax positions.
In March of 2009, the Company
received a tax assessment from the Kuwait Ministry of
Finance in the amount of approximately $2.6 million
related to the contested taxes resulting from the work
performed for the Public Authority for Assessment of
Compensation for Damages Resulting from Iraqi
Aggression (PAAC).
A liability had been previously
accrued for this tax including interest and penalties of
approximately $4.3 million.
The Company reached a
favorable settlement with the Ministry of Finance in April
2009. Accordingly, the Company has derecognized the
remaining accrual of approximately $1.4 million (net of
deferred tax) by reducing the income tax provision by
$870,000 and reducing interest expense and general and
administrative costs each by $275,000. For the fiscal year
ended July 31, 2009, the Company incurred a foreign
exchange gain of $275,000 to adjust both the accrual for
uncertain tax positions related to the Kuwait tax reserve and
the related federal tax benefit to current exchange rates.

The Company has not recorded income taxes applicable to
undistributed earnings of all foreign subsidiaries that are
indefinitely reinvested in those operations. At July 31,
2010, these amounts of undistributed earnings related
primarily to operations in Saudi Arabia, Chile, Peru and
Ecuador of approximately $5,693,000.

The Company files numerous consolidated and separate
income tax returns in the U.S. federal jurisdiction and in
many state and foreign jurisdictions.
In September of
2007, the Internal Revenue Service (IRS) concluded the

audits of fiscal 2004 through 2006.
In fiscal year 2010,
the IRS completed the audit for fiscal year 2008 with no
proposed changes. In September 2010, the IRS completed
the audit for fiscal year 2009 with no proposed changes.
The Company’s tax matters for the fiscal year 2007
remains subject to examination by the IRS. The Company’s
New York State tax matters have been concluded for years
through fiscal 2005 and the statute of limitations has
expired for fiscal 2006. The Company’s tax matters in
other material jurisdictions remain subject to examination
by the respective state, local, and foreign tax jurisdiction
authorities. No waivers have been executed that would
extend the period subject
to examination beyond the
period prescribed by statute.

for

As of July 31, 2010,
income tax return
purposes, the Company has used all of their U.S. net
operating loss carryforwards. The remaining net operating
losses pertain to losses in Brazil.

federal

At July 31, 2010 and July 31, 2009, the Company had
approximately $241,000 and $290,000, respectively, of
gross unrecognized tax benefits (UTPs) that if recognized,
would favorably affect the effective income tax rate in future
periods.
the liability
is reasonably possible that
associated with our UTPs will increase or decrease within
the next twelve months. At this time, an estimate of the
range of the reasonably possible outcomes cannot be
made. At July 31, 2010 and 2009, the liability for UTPs
and associated interest and penalties are classified as
noncurrent liabilities.

A reconciliation of the beginning and ending amount of
UTPs as of July 31 is as follows:

Beginning balance
Adjustment for foreign currency
affect on items already recorded
Reductions for tax positions of prior
years for:

- Changes in judgment
- Settlements during the period
- Changes in non-controlling

interests

- Lapses of the applicable

statute of limitations

Ending balance

2010

2009

$290,495

$2,746,504

—

(206,542)

(4,627)
—

19,530

—
(2,249,467)

—

(64,498)
$240,900

—
$290,495

9. Other Accrued Liabilities

Allowance for contract adjustments
Billings in excess of revenue
Other

July 31,

2010

2009

$3,483,876
3,891,381
1,442,922
$8,818,179

$3,417,828
4,101,761
1,530,406
$9,049,995

Celebrating 40 Years of Green Solutions

relating to potential

Included in other accrued liabilities is an allowance for
contract adjustments
cost
disallowances on amounts billed and collected in current
and prior years' projects of approximately $3.5 million at
July 31, 2010 and July 31, 2009.
The allowance for
contract adjustments is recorded for contract disputes and
government audits when the amounts are estimatable.

10. Stock Award Plan
Ecology and Environment, Inc. has adopted a 1998 Stock
To
Award Plan effective March 16, 1998 (1998 Plan).
supplement the 1998 Plan, a 2003 Stock Award Plan (2003
Plan) was approved by the shareholders at
the Annual
Meeting held in January 2004 and a 2007 Stock Award Plan
(2007 Plan) was approved by the shareholders at the Annual
Meeting held in January of 2008 (the 1998 Plan, 2003 Plan
and the 2007 Plan collectively referred to as the Award Plan).
The 2003 Plan was approved retroactive to October 16,
2003 and terminated on October 15, 2008 and the 2007
Plan was approved retroactive to October 18, 2007 and will
terminate October 17, 2012. Under the Award Plan key
employees (including officers) of the Company or any of its
present or future subsidiaries may be designated to received
awards of Class A Common stock of the Company as a
bonus for services rendered to the Company or
its
subsidiaries, without payment therefore, based upon the fair
market value of the Company stock at the time of the award.
The Award Plan authorizes the Company's board of directors
to determine for what period of
time and under what
circumstances awards can be forfeited.

The Company awarded 42,675 shares
valued at
approximately $707,000 in October 2009 pursuant to the
Award Plan. These awards issued have a three year vesting
period. The "pool" of excess tax benefits accumulated in
Capital in Excess of Par Value was $225,000 and $122,000
at July 31, 2010 and July 31, 2009, respectively.
Total
gross compensation expense is recognized over the vesting
period. Unrecognized compensation expense was
approximately $551,000 and $370,000 at July 31, 2010
and July 31, 2009, respectively.

11. Shareholders' Equity
a. Class A and Class B common stock
The relative rights, preferences and limitations of
the
Company's Class A and Class B common stock can be
summarized as follows: Holders of Class A shares are
entitled to elect 25% of the Board of Directors so long as the
number of outstanding Class A shares is at least 10% of the
combined total number of outstanding Class A and Class B
common shares. Holders of Class A common shares have
one-tenth the voting power of Class B common shares with
respect to most other matters.

In addition, Class A shares are eligible to receive dividends
in excess of (and not less than) those paid to holders of

32 Ecology and Environment, Inc.

Class B shares. Holders of Class B shares have the option
to convert at any time, each share of Class B common stock
into one share of Class A common stock. Upon sale or
transfer, shares of Class B common stock will automatically
convert into an equal number of shares of Class A common
stock, except that sales or transfers of Class B common
stock to an existing holder of Class B common stock or to
an immediate family member will not cause such shares to
automatically convert into Class A common stock.

b. Cash Dividend

For fiscal year 2010 and 2009, the Company declared cash
dividends of approximately $1.7 million and $1.6 million,
respectively. Within accounts payable,
the Company
recorded outstanding dividend payables at July 31, 2010
and 2009 of approximately $880,000 and $817,000.

c. Stock Repurchase

The Company purchased 207,941 shares of its Class A
common stock during the fiscal year ended July 31, 2009
pursuant the Company’s share repurchase program.
In
October of 2008, the Company repurchased 197,594
shares of Class A common stock at $8.75 per share in a
single transaction.
The Company’s Board of Directors
approved a 200,000 share repurchase program in
January 2004 and an additional 200,000 share
repurchase program in February 2006.

d. Noncontrolling Interest

On August 1, 2009, the Company adopted authoritative
accounting guidance that requires the ownership interests
in subsidiaries held by parties other than the parent, and
income attributable to those parties, be clearly identified
and distinguished in the parent’s consolidated financial
statements. Consequently, the Company’s noncontrolling
interest is now disclosed as a separate component of the
Company’s consolidated equity on the balance sheets,
rather than a “mezzanine” item between liabilities and
equity. Further, earnings and other comprehensive income
are now separately attributed to both the controlling and
noncontrolling interests. Earnings per share continues to
be calculated based on net income attributable to the
Company’s controlling interest. The impact on the
Company’s financial position and results of operations
from the adoption of
this authoritative accounting
guidance is presented in the tables below:

Fiscal year ended
July 31, 2009
Consolidated Statements
of Operations
As Reported As Adjusted

Fiscal year ended
July 31, 2008
Consolidated Statements
of Operations
As Reported As Adjusted

$(1,668,066)
5,221,274

—
$
6,889,340

$(1,606,338)
1,834,386

—
$
3,440,724

Minority interest
Net income
Net income
attributable to
noncontrolling
interests
Net income
attributable to
Ecology and
Environment, Inc.

—

1,668,066

—

1,606,338

—

5,221,274

—

1,834,386

On January 28, 2010 the Company purchased an
additional equity of 18.7% or approximately $2,360,000
of Walsh from noncontrolling shareholders for
$3,000,000. One third of the purchase price was paid in
cash, one third was paid with the Company's stock, and
the remainder was taken as loans carrying an interest rate
of 5% to be repaid over a two year period. The purchase
price that was paid to the noncontrolling shareholders
was at a premium over the book value of the stock. This
has created an entry to reduce the additional paid in
capital account of approximately $638,000. On March
1st, Walsh purchased an 80% ownership interest in
Lowham - Walsh Environmental Services LLC. This
transaction was an asset purchase of the former Lowham
Engineering LLC in Wyoming. Walsh contributed cash
and assets into the newly formed entity and issued a five
year promissory note bearing a six percent annualized
interest rate for the assets of the former company. All
other transactions with noncontrolling shareholders for
fiscal year ended July 31, 2010 were made at a value
approximating book value.

Effects of changes in the Company’s ownership interest
in its subsidiaries on the Company’s equity:

Fiscal Year
ended
July 31,2010

Fiscal Year
ended
July 31,2009

Transfers to noncontrolling interest:
Sale of 310 Walsh common shares
Sale of 20 Walsh common shares
Sale of 160 Walsh common shares
Sale of 196 Walsh common shares
Sale of 200 Lowham – Walsh common shares
Sale of 15,000 Walsh Peru common shares
Total transfers to noncontrolling interest
Transfers from noncontrolling interest:
Purchase of 112 Walsh common shares
Purchase of 2 Walsh Peru common shares
Purchase of 182 Walsh common shares
Purchase of 7,343 Walsh common shares
Purchase of 11,000 Walsh Peru common shares
Purchase of 50 Gestion Ambiental Consultores
common shares

—
—
40,850
50,040
52,222
84,450
227,562

—
—
(59,486)
(2,289,778)
(126,830)

(50,000)

Total transfers from noncontrolling interest

(2,526,094)

Transfers to (from) noncontrolling interest

$(2,298,532)

64,920
4,188
—
—
—
—
69,108

(27,332)
(547)
—
—
—

—

(27,879)

$41,229

There were no transfers to (from) noncontrolling interest in fiscal year 2008.

12. Shareholders' Equity -
Restrictive Agreement

Messrs. Gerhard J. Neumaier, Frank B. Silvestro, Ronald L.
Frank and Gerald A. Strobel entered into a Stockholders'
Agreement in 1970 which governs the sale of certain shares
of common stock owned by them, the former spouse of one
of the individuals and some of their children. The agreement
provides that prior to accepting a bona fide offer to purchase
the certain covered part of their shares, each party must first
allow the other members to the agreement the opportunity to
acquire on a pro rata basis, with right of over-allotment, all

of such shares covered by the offer on the same terms and
conditions proposed by the offer.

13. Lease Commitments
The Company rents certain office facilities and equipment
under non-cancelable operating leases. The Company
also rents certain facilities for servicing project sites over the
term of the related long-term government contracts.

At July 31, 2010, future minimum rental commitments are
as follows:

Fiscal Year

Amount

2011
2012
2013
2014
2015
Thereafter

$ 2,892,723
2,315,135
2,056,010
1,521,590
831,612
1,135,407

Lease agreements may contain step rent provisions and/or
free rent concessions.
Lease payments based on a price
index have rent expense recognized on a straight line or
substantially equivalent basis, and they are included in the
calculation of minimum lease payments. Gross rental
expense under the above lease commitments for 2010,
2009, and 2008 was approximately $3.2 million, $3.0
million and $2.6 million, respectively.

14. Defined Contribution Plans
Contributions
to the Parent Company’s defined
contribution plan and supplemental retirement plan are
discretionary and determined annually by the Board of
Directors. Walsh’s defined contribution plan provides for
mandatory employer contributions to match 100% of
employee contributions up to 4% of each participant’s
compensation. The total expense under the plans for fiscal
years 2010, 2009, and 2008 was approximately $2.0
million, $1.8 million, and $1.6 million, respectively.

15. Earnings Per Share
The computation of basic earnings per share reconciled to
diluted earnings per share follows:

Total income available to
common stockholders
Dividend paid
Undistributed earnings
Weighted-average
common shares
outstanding: basic and
diluted
Distributed earnings per
share
Undistributed earnings
per share
Total earnings per share

Fiscal Year

2010

2009

2008

$ 4,257,607
1,747,572
$ 2,510,035

$ 5,221,274
1,594,653
$ 3,626,621

$ 1,834,386
1,535,492
298,894

4,160,816

4,115,921

4,259,663

.42

.39

.60

.88

1.02

1.27

.36

.07

.43

Celebrating 40 Years of Green Solutions

After consideration of all the rights and privileges of the
Class A and Class B stockholders discussed in Note 11,
in particular the right of the holders of the Class B
common stock to elect no less than 75% of the Board of
Directors making it highly unlikely that the Company will
pay a dividend on Class A common stock in excess of
Class B common stock, the Company allocates
undistributed earnings between the classes on a one-to-
one basis when computing earnings per share. As a
result, basic and fully diluted earnings per Class A and
Class B share are equal amounts.
Effective August 1, 2009, the Company has determined
that its unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities. These
securities shall be included in the computation of earnings
per share (EPS) pursuant to the two-class method. The
resulting impact was to include unvested restricted shares in
the basic weighted average shares outstanding calculation.
The impact for fiscal years 2010, 2009, and 2008 was
approximately 109,000, 133,000, and 95,000 shares,
respectively.

16. Segment Reporting
Segment information for fiscal year ended July 31, 2010 is
as follows:

Geographic information:

United States

Foreign countries

Revenue

Long-Lived
Assets

$101,840,534

$25,991,353

43,034,000

3,714,000

Segment information for fiscal year ended July 31, 2009
is as follows:

Geographic information:

United States

Foreign countries

Revenue

Long-Lived
Assets

$116,571,938

$24,830,747

30,315,000

2,730,000

Segment information for fiscal year ended July 31, 2008
is as follows:

Geographic information:

United States

Foreign countries

Revenue

Long-Lived
Assets

$88,931,816

$23,929,584

21,601,000

2,724,000

cash flows, or to any other pending legal proceedings
other than ordinary, routine litigation incidental
to its
business. The Company maintains liability insurance
against risks arising out of the normal course of business.

termination,

Certain contracts contain termination provisions under
which the customer may, without penalty, terminate the
contracts upon written notice to the Company. In the event
of
the Company would be paid only
termination costs in accordance with the particular
contract. Generally, termination costs include unpaid costs
incurred to date, earned fees and any additional costs
directly allocable to the termination.

18. Recent Accounting Pronouncements
In June 2009,
the FASB issued guidance on the
consolidation of variable interest entities, which required
revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests.
The Company is required to adopt these provisions on
August 1, 2010.
The Company does not believe the
adoption will have a material impact on the Company's
consolidated financial position, results of operations or
cash flows.

In January 2010, the Financial Accounting Standards
Board updated the authoritative guidance for fair value
measurements with new disclosure requirements. These
requirements include disclosures on the transfers of assets
and liabilities between Level 1 (measurements based on
quoted prices in active markets for identical assets or
liabilities) and Level 2 (measurements based on significant
other observable inputs) of the fair value measurement
hierarchy, and a roll-forward of activities on purchases,
sales, issuance, and settlements of Level 3 (measurements
based on significant unobservable inputs) assets and
liabilities. The new disclosures are effective for annual
reporting periods beginning after December 15, 2009,
except
sales,
issuances and settlements in the roll-forward of activity in
Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15,
2010. The Company does not believe the adoption of this
guidance will have a material impact on the Company’s
consolidated financial position, results of operations or
cash flows.

the disclosures about purchases,

for

17. Commitments and Contingencies
From time to time, the Company is a named defendant in
legal actions arising out of the normal course of business.
The Company is not a party to any pending legal
proceeding the resolution of which the management of the
Company believes will have a material adverse effect on
the Company’s results of operations, financial condition,

19. Supplemental Cash Flow Information

Disclosure

For purposes of the consolidated statements of cash flows,
the Company considers all highly liquid instruments
purchased with a maturity of three months or less to be
cash equivalents. Cash paid for interest amounted to
approximately $224,000, $181,000, and $125,000 for

34 Ecology and Environment, Inc.

fiscal years 2010, 2009, and 2008, respectively. Cash
paid for income taxes amounted to approximately $1.5
million, $2.2 million, and $1.2 million for fiscal years
2010, 2009, and 2008, respectively. On March 1st,
2010, as part of
the formation of Lowham - Walsh
Environmental Services LLC., the entity issued a five year
promissory note for approximately $80,000 bearing a six
percent annualized interest rate. During the second
quarter of fiscal year 2010, the Company purchased an
additional 18.7% of Walsh from its noncontrolling
shareholders for $3.0 million. One third of the purchase
price was paid in cash, one third was paid with the
Company’s stock, and the remainder was taken as loans to
be repaid over a two year period. During fiscal year 2010,

2009 and 2008, Walsh Peru financed vehicles and
computer equipment
leases of
approximately $95,000, $273,000 and $43,000,
respectively.

through capital

in ECSI, LLC.

20. Subsequent Events
On August 23, 2010 the Company purchased a 60%
ownership interest
This is a Lexington,
Kentucky based engineering and environmental consulting
company that specializes in mining work. The Company
paid $1.0 million for this ownership interest. The newly
formed company will be consolidated into the Company’s
financial reporting for the first quarter of fiscal year 2011.

21. Selected Quarterly Financial Data (unaudited)
(In thousands, except per share information)

2010

Revenues

Income from operations

Income from continuing operations before income taxes

Net income

Net income per common share: basic and diluted

First

Second

Third

Fourth

$ 39,475

$ 31,062

$ 33,350

$ 40,988

2,375

3,176

1,400

.34

$
$

1,519

1,349

235

.06

$
$

1,847

1,781

747

.18

$
$

4,152

4,153

1,876

.44

$
$

2009

Revenues

Income from operations

Income from continuing operations before income taxes

Net income

Net income per common share: basic and diluted

First

Second

Third

Fourth

$ 33,692

$ 34,069

$ 38,016

$ 41,110

3,194

3,123

1,475

.35

$
$

2,125

1,964

965

.24

$
$

1,583

1,784

1,722

.42

$
$

2,543

2,579

1,059

.26

$
$

Lowham Walsh, LLC provides a wide range of environmental services
including oil and gas consulting, energy permitting, and mining services.

Celebrating 40 Years of Green Solutions

Market for E E’s Common Equity and
&
Related Stockholder Matters

The Company’s Class A Common Stock was traded on the AMEX prior to September 8, 2008. Beginning on
September 8, 2008, the Company’s Class A Common Stock has been listed on NASDAQ. There is no separate market
for the Company’s Class B Common Stock. The following table represents the range of high and low prices of the
Company’s Class A Common Stock as reported by the American Stock Exchange, or NASDAQ as appropriate, for the
periods indicated.

FISCAL 2010

High

Low

First Quarter (commencing August 1, 2009 - October 31, 2009)

$ 17.00

$ 14.69

Second Quarter (commencing November 1, 2009 - January 30, 2010)

Third Quarter (commencing January 31, 2010 - May 1, 2010)

Fourth Quarter (commencing May 2, 2010 - July 31, 2010)

FISCAL 2009

First Quarter (commencing August 1, 2008 - November 1, 2008)

Second Quarter (commencing November 2, 2008 - January 31, 2009)

Third Quarter (commencing February 1, 2009 - May 2, 2009)

Fourth Quarter (commencing May 3, 2009 - July 31, 2009)

16.23

15.30

13.61

High

$ 11.35

13.50

14.65

15.20

14.07

13.15

11.91

Low

$ 8.10

7.61

11.30

11.85

As of September 30, 2010, the number of holders of record of the Company’s Common Stock was 446. The Company
estimates that it has a significantly greater number of Class A Common Stock shareholders because a substantial
number of the Company’s shares are held in street name.

36 Ecology and Environment, Inc.

Our reestablishment of native plant species in the wetland/floodplain
habitat of the 125-acre (50.5 ha) nature preserve at E & E’s corporate
headquarters attracts 200 different animals, including several new species.

ecology and environment, inc.
Celebrating 40 Years of Green Solutions

BOARD OF DIRECTORS
Gerhard J. Neumaier

Chairman and Director

Frank B. Silvestro

Christopher L. Quina, P.G.

Vice President

Richard Rudy, P.G., C.P.G.

Vice President

Executive Vice President and Director

George A. Rusk, J.D.

Gerald A. Strobel, P.E.

Executive Vice President of Technical
Services and Director

Ronald L. Frank

Executive Vice President, Secretary,
and Director

Gerard A. Gallagher, Jr., retired
Company officer and Director

Michael C. Gross, insurance broker and

Director

Ross M. Cellino, attorney and

Director

Timothy Butler, retired bank executive

and Director

CORPORATE OFFICERS
Gerhard J. Neumaier

Chairman

Kevin S. Neumaier, P.E.

President and Chief Executive Officer

Frank B. Silvestro

Executive Vice President

Gerald A. Strobel, P.E.

Executive Vice President of Technical
Services

Ronald L. Frank

Executive Vice President,
Secretary

Laurence M. Brickman, Ph.D.

Senior Vice President

Kevin Donovan

Senior Vice President
Gerard A. Gallagher, III

Senior Vice President of Environmental
Sustainability
Roger J. Gray

Senior Vice President

Fred J. McKosky, P.E.

Senior Vice President

Ronald J. Skare

Senior Vice President

Nancy Aungst

Vice President
James B. Collins
Vice President

Timothy J. Grady, P.E.

Vice President

Craig Hathaway, C.P.A.

Vice President of Finance
Cheryl A. Karpowicz, AICP

Vice President
H. John Mye, P.E.

Vice President, Treasurer
and Chief Financial Officer

Vice President

Carmine A. Tronolone

Vice President
George W. Welsh
Vice President

Colleen C. Mullaney-Westfall, J.D.

Assistant Secretary

CORPORATE OFFICE
Buffalo Corporate Center
368 Pleasant View Drive
Lancaster, NY 14086-1397
TEL: 1 (716) 684-8060
FAX: 1 (716) 684-0844
E-MAIL: jmye@ene.com
WEB: www.ene.com

STOCK TRANSFER AGENT
American Stock Transfer & Trust Co.
40 Wall Street
New York, NY 10005
TEL: 1 (212) 936-5100

EXCHANGE LISTING
NASDAQ Global Market
Ticker Symbol: EEI

INDEPENDENT AUDITOR
Schneider Downs & Co., Inc.
1133 Penn Avenue
Pittsburgh, PA 15222

LEGAL COUNSEL
Gross, Shuman, Brizdle & Gilfillan, P.C.
465 Main Street, Suite 600
Buffalo, New York 14203

FORM 10-K
E & E’s Annual Report including financial
statements is for the general information
of the Company’s shareholders. It is not
intended to be used in connection with
any sale or purchase of securities.
Shareholders may obtain from the
Company without charge a copy of its
Annual Report on Form 10-K as filed with
the Securities and Exchange Commission,
including financial schedules, by sending
a written request to:
Mr. H. John Mye, Chief Financial Officer
Ecology and Environment, Inc.
368 Pleasant View Drive
Lancaster, NY 14086-1397

OTHER OFFICES
Albany
Anchorage
Austin
Baton Rouge
Boulder
Chicago
Colorado Springs
Corbin
Dallas
Denver
Fort Collins
Gillette
Grand Junction
Greenville
Houston
Kansas City
Lakewood
Lexington
Lander
Long Beach

Miami
New York City
Oakland
Orlando
Owensboro
Pensacola
Phoenix
Pikeville
Portland
Providence
Salt Lake City
San Diego
San Francisco
Seattle
Tallahassee
Virginia Beach
Washington
West Palm Beach
Williamson

SUBSIDIARIES
American Arab Aqua Culture Co. (Jordan)
Consortium of International Consultants, LLC
E & E Environmental Services, LLC (Russia)
E & E International, LLC (Russia)
E & E Umwelt-Beratung, GmbH (Germany)
Ecology & Environment Engineering, Inc.
Ecology & Environment of Saudi Arabia Co., Ltd.
(Saudi Arabia)
Ecology and Environment de Chile, S.A. (Chile)
Ecology and Environment Mexico S.A. de C.V. (Mexico)
Ecology and Environment do Brasil, Ltda. (Brazil)
Ecology and Environment International Services, Inc.
Ecology and Environment South America, Inc.
(Grand Cayman)
Gestion Ambiental Consultores (Chile)
Gustavson Associates, LLC
Lowham Walsh Engineering and Environment Services, LLC
Servicios Ambientales Walsh S.A. (Ecuador)
Tianjin Green Engineering Company (China) (joint
venture)
Walsh Environmental Scientists & Engineers, Inc.
Walsh Peru, S.A. (Peru)
YiYi Ecology and Environment Consulting (Wuxi) Co., Ltd.
Overstreet Orlando Mitigation Team, LLC

E & E has conducted over 50,000 projects in 96 countries nearly every ecosystem on our planet.

–

ecology and environment, inc.
Celebrating 40 Years of Green Solutions

W W W . E N E . C O M